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Investors rush for gold after Swiss surprise move to abandon franc cap

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The Swiss central bank's surprise move to abandon the franc's cap against the euro sent investors rushing to gold as a haven from swings in currencies.

[NEW YORK] The Swiss central bank's surprise move to abandon the franc's cap against the euro sent investors rushing to gold as a haven from swings in currencies.

Assets in the SPDR Gold Trust, the world's biggest exchange-traded product backed by bullion, rose 1.4 per cent to 717.15 metric tons on Jan 15, the biggest jump since August 2011. Futures in New York capped the longest rally in more than six months as investors sought safety amid surges in currency volatility."You had a lot of people buying into gold products for investment reasons," saidMichael Cuggino, who helps oversee US$5.7 billion as the president and portfolio manager at Permanent Portfolio Family of Funds in San Francisco. "With the Swiss National Bank making such a dramatic move to get out of the way of the falling euro, it's part safety trade and part asset protection given the devaluation of the currency." Gold prices have climbed 6.8 per cent this year as Europe's flagging economy boosted speculation that officials will add to stimulus measures, increasing demand for a store of value. The World Bank this week cut its 2015 global growth forecast, and a collapse in oil prices is sparking concern over deflation. Muted inflation and stagnant foreign economies may prompt the Federal Reserve to wait longer before raising interest rates.

Demand for the metal will rebound in 2015 after two straight annual declines as consumption in Asia advances and investors return to bullion ETPs, according to HSBC Securities (USA) Inc. Assets in global gold funds declined 164 tons last year as prices posted a consecutive annual decline for the first time since 1998.

Gold futures for February delivery surged 2.5 per cent to settle at US$1,264.80 an ounce on the Comex in New York on Jan 15, after touching US$1,267.20, the highest since Sept 8. The precious metal gained for a fifth straight session, the longest rally since June 25.

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The Swiss shift marks an attempt to reinforce defenses of the domestic economy before government bond purchases by the European Central Bank that could crumple the franc cap. The central bank reduced the interest rate on sight deposits, deepening a cut announced less than a month ago.

The Swiss franc soared as much as 41 per cent against the euro on Jan. 15 in one of the biggest moves among major currencies since the collapse of the Bretton Woods system in 1971. Currency brokerage Global Brokers NZ Ltd. said it is closing due to losses sustained. Call options giving the owners the right to buy February gold futures at US$1,300 rose fivefold on the Comex.

Last year, prices declined 1.5 per cent as equities surged and an improving US economy cut demand for haven assets. In 2013, the metal tumbled 28 per cent.

REUTERS

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