What 'Violet Thursday' Did For Swiss Francs, QE, And The Gold Price

January 21, 2015

The Swiss central bank's euro peg marked the top in 2011 gold prices. Now it has gone.


[This article originally appeared on BullionVault and is republished here with permission.]


Violent doesn't say it; violet might. That's violet in honor of the largest Swiss banknote, the 1000 franc note.

Because that's what hedge fund types who bet against the Swiss franc keeping its peg of CHF1.20 per euro should have used to pay for lunch on Thursday ...

... while lighting their cigars with the biggest denomination euro paper, the €500 note.

Odd coincidence, but the day the SNB imposed its peg at CHF 1.20 per euro—back on 6 September 2011—was the day gold peaked at $1,920 per ounce. It's been downhill pretty much since then.

How come? Well, like Mario Draghi's "whatever it takes" speeches of 2012 (when the euro gold-price again hit those highs), the Swiss peg suggested that central bankers were taking charge ... and had everything under control.

Who needed gold? Who needs it now? Maybe ask this week's new buyers ... or simply take a quick look at what the Swiss news did for gold prices in all currencies barring the super-charged franc.

Good buying has come in, notably from euro investors ahead of what looks certain to be full quantitative easing from the European Central Bank on Thursday. If past QE announcements from the Bank of England and US Fed are any guide, traders might expect a quanti-climax in gold prices short term. Buy the rumor, sell the news—it applied every time, no matter the underlying direction in gold.

And as for those rumors, last week's SNB announcement was a hammy actor's shouted stage-whisper ... winking that they know something big is coming from Draghi and his eurozone committee.

"Why didn't you tell us you were about to end the peg?" bleated the International Monetary Fund's chief, Christine Lagarde.

Because, SNB chairman Thomas Jordan told reporters on Thursday, removing the Franc's low peg ... and letting it move higher as market demand wanted ... had to be a surprise.

And a surprise it was!

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