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

January 21, 2015



The euro lost 25 percent inside 10 minutes against the Swissie ... or maybe 40 percent depending on whose data you check ...

... while the Swiss stock market dropped more than 10 percent ...

... as Swiss government bond prices jumped so high, the annual yield they offer has gone negative on all debt out to seven-year maturities ...

... and the gold price lost 23 percent for Swiss investors top to bottom before recovering half that plunge and settling Friday at CHF 1,100 per ounce ... just above the 10-month low seen in October 2014.

Why so crazy? One currency dealer 'was lost for words ... the thing which could not happen, has occurred—the speculators have won against the National Bank.'

In truth, most FX speculators...certainly at the 'retail' level ... were betting the other way. So they got filled, drilled and killed on Thursday's huge spike, and their losses in turn have started killing some of the larger FX bookmakers too.

But yes, the Swiss National Bank ... after printing billions of Francs (electronically) and throwing them at the FX market to try and keep the currency low ... gave in to the flood of bank account inflows on Thursday.

That means the euro's false level of CHF 1.20 ... attacked by hedge funds and other currency traders, and defended with all those billions of francs from nowhere ... has gone.

So the ‘speculators’ were right in other words. Their ‘speculation’ that central banks cannot fight the market proved anything but a wild guess ... and the franc has shot higher.

Priced in francs (currency code CHF), the dollar sank together with everything else ... losing 14 percent by midday in London. The euro meantime touched CHF 0.71 on some screens (we doubt anyone dealt down there) ... whipping back to 0.98 by the end of the week.

That still marks the single currency's lowest-ever valuation against its small, wealthy neighbor's money.

What to make of it all?

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