Frustrated Safe Haven Swiss Franc Investors May Soon Turn to Gold and Silver

Saturday, April 14, 2012
By Paul Martin

By: Dr Jeff Lewis
Market Oracle
Apr 14, 2012

The resurgence of concerns over the long term solvency of debt laden Eurozone countries like Greece, Spain, Portugal, Italy and Ireland has led to refreshed selling of the Euro against the other major currencies since early April.

Although the market in EUR/USD now seems to have stabilized just over the psychological 1.3000 level, deep questions remain among international investors as to whether the European Central Bank or ECB will be able to manage the ongoing European debt crisis over the coming few years without the trade bloc disintegrating or the common currency being further devalued by the forex market.

Furthermore, investors worried over the ECB’s recent notable balance sheet expansion, which has reportedly grown by roughly 30 percent since current ECB President Mario Draghi took over last November, have returned to buying the Swiss Franc as a relative safe haven for their investment funds.

Swiss Franc No Longer Convertible Into Gold

Nevertheless, two key factors have substantially diminished the Swiss Franc’s historic status as a safe haven currency with relatively low inflation. The first and primary factor is that the Swiss Franc is no longer convertible into gold, having been the last major paper currency to leave the Gold Standard after a referendum on the issue took effect on May 1st of 2000.

Switzerland’s 40 percent gold reserve requirement was also suspended at that time, and the country’s gold reserves subsequently fell sharply to only 20 percent by 2005. Switzerland had adopted the Gold Standard in the late 1870’s until convertibility was suspended in 1914. Its currency was then devalued before returning to the standard in the 1920’s.

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