The big news from the Swiss National Bank to stop pegging its currency to the Euro has shocked the foreign exchange markets. Some analysts have also linked this move to the recent recovery of gold including SPDR Gold Trust (GLD). This relation, however, isn’t straight forward – let’s examine the recent rally of GLD.
After over three year, the SNB announced an end to its policy to peg the Euro at a minimum exchange rate of 1.20 Euro to Swiss franc. The ongoing devaluate of the Euro has, according to the bank, triggered it to make this move. As Thomas Jordan, the Chairman of SNB, stated:
“Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated substantially against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB has concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.”
This decision has stirred up the financial markets – mainly devalued the Euro against leading currencies including the U.S. dollar. Normally, an appreciation of the U.S. dollar would tend to coincide with a decline in the price of GLD. But the price of GLD kept going up. The recent move of the SNB actually raises the uncertainty in the financial markets, which plays in favor of gold investments such as GLD.
The rest of this analysis is at Seeking Alpha
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