Investors consider gold over the yen and Swiss franc

With both Japan and Switzerland threatening to intervene to protect the value of their respective currencies, safe haven investors may increasingly be harbouring their money in gold.

  • 24 Aug 2011
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Investors seeking a safe haven for their money may be shifting their attention from the Japanese yen and Swiss franc to gold, over concerns of concerted intervention fears among the former two countries.

A raft of bad economic news, including protracted debt concerns over Europe, recent US downgrade, and Federal Reserve promise to hold rates for two years due to poor economic conditions has led nervy investors to buy the Swiss franc and the Japanese yen en masse.

The spot rate for the latter stands at ¥76.7 against the US dollar, for example, up from ¥80.53 at the beginning of July.

However both Japan and Switzerland have said they are prepared to intervene if their respective currencies become so strong that they materially damage exports.

Japan most recently flexed its muscles intervening selling yen in a bid to halt its appreciation on August 4, driving the currency down as much as 4.1% against the dollar. The markets since pushed back, forcing the yen to strengthen again.

Last week, Japan’s Ministry of Finance met up with Bank of Japan officials and agreed they would work together to combat the yen’s rampant rise. The market is now waiting for the next bout of intervention.

Given such concerted efforts to intervene, it seems logical that nervy FX investors may decide to invest in gold rather their traditional yen or Swiss franc havens, particularly given the absence of any confidence in the US dollar, the most prominent safe haven currency.

A number of strategists told Asiamoney PLUS that shifting assets from the currencies into gold over intervention fears is highly plausible. The price of gold reached US$1,900 per troy ounce on Monday (22 August), a record high.

“There are a number of factors in play—the number of truly safe havens is limited and…those in the currency space are likely to see pressure from their central bankers if they rise too far,” said Nick Trevethan, senior commodities strategist at ANZ in Singapore.

However gold is subject to a similar intervention risk coming from exchanges and clearing houses.

“In the case of gold, the Shanghai Gold Exchange raised margins on some of its products, and a study of CME intraday trading ranges and its margining (which were raised in mid August) suggests another rise may be due if gold continues to race ahead.”

  • 24 Aug 2011

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