15 January 2015

Gold Daily and Silver Weekly Charts - Flight to Safety - The Reckoning

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.

Have a pleasant evening.