Switzerland pulls plug on Euros

Switzerland Pulls Plug on Euro, Gold Pops
The Swiss just gave Central Banks a stinging rebuke for their money printing policies, and gold and silver went on an absolute tear this week. Are larger developments afoot?

 

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You can be sure-Greece is talking seriously about backing out also.

 

Are larger developments afoot?

No.

The Swiss were very patient but should have uncoupled some time ago, since the damage to their economy from the undervalued currency for European trade would amount, in effect to a blanket discount to Eurozone buyers with no significant advantage to the Swiss.

This inevitable move would have been factored in to market prices ages ago.

 

Then why the violent market response when the actual news broke?

 

You can be sure-Greece is talking seriously about backing out also.

You misunderstand the situation. Switzerland was never a Eurozone country and is not in the European Union. It does not use the Euro

The link was more theoretical involving only a commitment to maintain an exchange rate at a fixed level.

Greece is an EU country and does use the Euro, but has spent about twice as many as it has earned while a member, making disengagement rather tricky, involving sovereign debt default

 

That's all the idiots who were not in the loop.

 

And that is the point. Maintaining the unilaterally introduced 1.20 "threshold" just got too expensive for the Swiss central bank.

As for Greece, even if Syriza should win the elections in a week (and that is quite likely), they do not want to take the country out of the currency union. Negotiating the debt is not the same as a Grexit scenario.

Christian

 

They're part of the market, too.

It seems to me that news which produces a dramatic market move was, by definition, NOT "priced into the market".

 

The ones that got hurt were the Foreign exchange players who were using the pegged franc for low risk ( assumed) trades. The assumption was that if the Swiss were going to un-peg the franc, they would do so gradually so the exchanges could gradually reduce their exposure via margins, etc. However the Swiss decided ( after apparently letting the info slip to valued friends and associates) to wack the rest of the FX groups ( my assessment based on who were NOT up to their necks in deals before the deal happened). The bullion sites are banging this event even though it was a 'paper' deal , and nothing to do with PM directly. The majority of loss, was to the retail trade and not the large financial institutions. My interpretation of course.

 

I remember talking with some Swiss from ABB when they pegged in 2011. They were happy about it as they thought their jobs were at stake. Whether most realize it or not, this is a BIG deal. A canary event?

 

Frankfurt (AFP) - The German central bank or Bundesbank said Monday that it stepped up the repatriation of its gold reserves from overseas storage last year.


"The Bundesbank successfully continued and further stepped up its transfers of gold," the central bank said in a statement.

"In 2014, 120 tonnes of gold were transferred to Frankfurt from storage locations abroad: 35 tonnes from Paris and 85 tonnes from New York."

Germany's gold reserves are the second-biggest in the world after those of the United States and totalled 3,384.2 tonnes this month, according to the latest data compiled by the World Gold Council.

For decades the Bundesbank's gold holdings have been kept in the treasuries of other central banks -- in Paris, London and New York.

According to the German central bank's own data, 1,447 tonnes are stored at the Federal Reserve Bank in New York, 438 tonnes at the Bank of England in London and 307 tonnes at the Banque de France in Paris.


There were historical reasons for this.

After World War II and the export revival of West Germany's "economic miracle" in the 1950s, the central bank accumulated dollars it swapped for gold at the Federal Reserve. With Germany split between capitalist west and the communist East German state until 1990, storing most of the gold abroad was a way to keep it out of Soviet reach during the Cold War.

But surging mistrust of the euro during Europe's debt crisis fed a campaign to bring home Germany's gold reserve from New York and London, with some political parties fuelling fears the gold might have been tampered with.

Under the Bundesbank's new gold storage plan in 2013, it decided to bring back 674 tonnes from abroad by 2020 and store half of its gold in its own vaults.

"Implementation of our new gold storage plan is proceeding smoothly. Operations are running very much according to schedule," said Bundesbank executive board member Carl-Ludwig Thiele.

"We also called on the expertise of the Bank for International Settlements for the spot checks that had to be carried out. As expected, there were no irregularities," Thiele said.

Since the transfers began in 2013, the Bundesbank said it has relocated a total of 157 tonnes of gold to Frankfurt -- 67 tonnes from Paris and 90 tonnes from New York.

 

In Regards to the above news;
What does that mean to the price of gold in the future?

 

I think as always it is just speculation, nobody can know what exactly this means for the price of gold or anything.
The only fact that remains is that you can never have enough gold
and yes Switzerland never had the EURO, probably a smart move for them

 

Switzerland never had the EURO, probably a smart move for them

It was never an option for them. They are not EU members and to join the EU would be a violation of Switzerland's neutrality and independence from geopolitical blocs.

Shifting a thousand tons of gold around sounds like a lot, but it is a bit over half of one percent of the gold in the world already mined, from jewellery to private and government hoards.

Germany would be unlikely to sell as they don't need more foreign exchange, as they run a trade surplus. You do not have to spend the money in the bank if you can easily afford your lifestyle from income, and even save a bit.

They could mint it all into gold coins and hand out some free gold to the entire population. German voters would no doubt prefer this to using it back up huge 'Loans' to the weaker members of the EU. A thousand tons would make one and a quarter ten gram coins (about the size of a gold $10 piece) per German.

 

Nothing. The Bundesbank will continue moving parts of its gold reserves, a process that started a while ago - primarily because having its gold in France (which has the same currency as Germany) does not make sense any more. So by 2020 about half of the Bundesbank's gold reserves will be physically located in Germany. The bars in London will probably all stay there, those in Paris will go to Frankfurt/Mainz, and about one fifth of those in New York will be moved to Germany.

Six years ago, Numismaster published a sensational revelation , namely that part of the Bundesbank's gold reserves is in New York. The story was based on a similarly brilliant piece of journalism, by the American writer Max Keiser who expected some "outcry" in Germany. Apparently he did not know what people here had known for years - yes, the gold reserves are stored at different places outside Germany. Oh well, gold bugs ...

Christian

 

What it means is that overnight the cost to manufacture in Switzerland just went up about 20%. They are already a high cost country and this will make it worse.

Our company is making plans to transfer a lot of our manufacturing to another EU country.

 

Hmm, "another"? Switzerland is not an EU country.

Christian

 

I thought Switzerland was in Europe (EU), please correct me if I'm wrong. I did not mean European Union with the Acronym, I'm thinking that's is the source of your confusion.

 

Sure, Switzerland is in Europe. So you use "EU" when referring to non-EU countries? Well, make sure your business partners understand you.

Christian

 

I'm just not sure I understand your point. Isn't EU used as an acronym for Europe? I see it used that way all the time. I understand it also means European Union which is a different animal altogether.