Gold regained the $1300 level on Friday as tensions in eastern-Europe continue to ratchet higher. Gold is a classic safe-haven in times of geopolitical unrest.
Ukraine’s Prime Minister Arseniy Yatsenyuk accused Russia of wanting to occupy the country “militarily and politically.” Yatsenyuk went so far as to suggest that Russia “wants to start World War III.”
Meanwhile the Obama administration and its key European allies threatened to levy additional sanctions on Russia, for failing to live up to the four-party peace accord agreed to just last week in Geneva. The escalating situation has weighed on global stocks today, enhancing the safe-haven appeal of gold.
Swiss National Bank President Thomas Jordan acknowledged the need for a safe haven today, he just doesn’t want you to choose the Swiss franc. “The international environment is still giving rise to high levels of uncertainty, and so the danger that the Swiss franc, as a safe haven, might suddenly be subject to further upward pressure hasn’t been averted,” said Jordan. He went on to threaten that the SNB would take further action to suppress the franc if it becomes necessary.
Remember when the dollar used to be a reliable safe-haven? The greenback actually fell through mid-March, as Russia moved to annex Crimea. After the annexation, and perhaps amid hopes that Russia might stop there, the dollar rebounded modestly. However, the dollar came under renewed pressure as it looked increasingly like Russia might have designs on other parts of eastern and southern Ukraine.
It seems no country wants a strong currency these days, and that reality is reflected in the monetary policy of their central banks. This has led to an escalating currency war, amid beggar thy neighbor efforts to debase currencies.
For example, if the ECB does indeed cut rates and initiate quantitative easing as means to knock down the euro, the SNB would likely be forced to act on the threat made by Mr. Jordan today. If the euro falls relative to the Swiss franc, further direct intervention by the SNB would almost assuredly be necessary to defend the 1.20 floor in the EUR-CHF rate.
That cross rate is currently trading around 1.22, largely because the ECB has been all talk and no action thus far. However, ECB governor Luc Coene suggested that another weak Eurozone inflation number would be the catalyst for policy action.
The major central banks have been quite clear; they don’t want you buying their currencies, as safe-havens or for another other reason. They’re prepared to further debase their currencies and make you suffer if you don’t heed them.
Buy gold instead. It has been a safe-haven far longer than any of those fiat currencies have even existed.
Grant Williams calls gold “unsure-ance”. In a recent piece for Mauldin Economics he says, “if you’re 20% unsure about the future, you might consider putting 20% of your assets in gold.” Sound advice indeed.