Roses are red, violets are blue,The Swiss peg collapsed, the gold rig will too.
Gold had a fairly significant flight to safety rally today as the Swiss
National Bank roiled forex markets by decoupling the Swiss franc from
the Euro.
This caught almost all of the Street by surprise, except for a few
analysts who saw the mounting costs of maintaining (an official
euphemism for 'rigging') of the Swiss franc to the euro to support Swiss
export trade as becoming problematic.
As you may recall, the Swiss National Bank instituted its peg to the
Euro in September 2011, about the time that gold entered its bear
market. And now the peg has been removed. The Swiss franc, like gold,
is considered a safe haven, and the Euro is in a bit of trouble, with
recession and QE looming.
The Swiss franc has been straining at the leash to run higher for some
time as a traditional 'harder currency' and a flight to safety. The
Swiss Bank sought to restrain this trend in order to help the Swiss
export trade which is a large part of their GDP.
Gold also has been restrained for some time by several of the Western central banks.
When such a long term manipulation breaks down, the results can be
impressive. The gold rig has not broken down yet, but the Swiss-Euro
rig has.
There will be a reckoning.
There is a fantasy that the US is a financial fortress, like the JP
Morgan Balance Sheet, that does not condescend to notice developments
overseas. Hah! The notion that large sovereigns with their own
currencies are islands unto themselves, which some moderns are casting
about as something new, is nonsense and rubbish.
Bloomberg financial TV become 'The View' for the one percent, and the
level of discussion by the spokesmodels was not particularly useful
anymore, especially since Adam Johnson left. CNBC is not much better,
with its cronyism. So I think most of their viewers will be caught by
surprise in whatever should come as they were in 2008, 2002, etc.
Forewarned is forearmed.
We live in a very interconnected world, with the financial sector
providing a web of counterparty dependency. While there are certainly
some who would like to see the US Dollar become the one world currency,
that is highly unlikely to happen. And so the world remains
interdependent. What the Fed and the Treasury do with the Dollar
matters, and confidence is paramount.
The Swiss National Bank did not release this peg lightly. A 'stronger
franc' is not good for Swiss business which is more export than import
oriented. And while it might provide a little edge for the Swiss Banks,
they are so internationalized that it makes little difference.
I suspect that this will be downplayed by the talking heads. The
Bankers want to maintain the mystique of supra-natural competency and
wisdom, and the funds who are getting blowtorched on the short side of
this flight to safety want to get out with their skins intact.
Big things are happening. Gold has broken out, but silver has not
followed yet, and certainly not seen its high beta breakout engines kick
in, which is about as clear a sign of a flight to safety as I can
imagine.
Give this one some time and don't chase it. Things will continue to
move slowly in fits and starts. I do not think that this is the big one
yet, but there is not a lot of doubt in my mind that the global
financial system is heading for a reckoning with valuation. The actions
of the economists and the Bankers, with their servile political
servants, have been so counterproductive and arrogant that the next
financial collapse has been almost assured.
Certainly no need to panic. But now is a good time to make sure that you
have taken some measures to get yourself out of the blast zone of
financial folly.