Common sense suggests that in an era of devaluing currencies and negative real interest rates, gold will continue to be a winner. But that would be an understatement, given the fact that the currency war is getting worse with every passing day. Let us elaborate a bit.
When some currencies devalue themselves, they have far-reaching ramifications for other currencies. Amidst the ongoing currency war, the Swiss franc is one currency that rivals gold as a safe haven. Though a steadily rising Swiss franc may sound like great news for its economy, ironically, it has been a concern for the Swiss National Bank (SNB), the central bank of Switzerland. An appreciating currency is a big dampener for an economy that depends significantly on exports. A testimony to this is the recent move by the SNB wherein it announced a "minimum" exchange rate target of 1.20 francs per euro. Consequently, the Swiss franc fell 7-8% to fall in line with the central bank's target. In fact, the central bank has expressed its willingness to create Swiss francs to buy "unlimited" amounts of foreign exchange. As has been aptly pointed out by The Economist, this scenario is pretty much reminiscent of the 1930s. During that period when certain countries went off the gold standard, they gained a competitive advantage against their rivals in the form of a cheap currency. This put a lot of pressure on the other countries to abandon the gold standard as well. As result, when one country devalued its currency, the other had no option but to follow suit. Now, this forms a self-perpetuating loop of endless currency devaluation exercises. A similar episode is being played out today in the form of more and more quantitative easing (QE). In such a situation, gold is the only real currency or preserve of value that is safe from the hands of central bankers. You cannot mint excessive gold the way you can print paper money. Similarly, you cannot impose capital controls on it or fix price targets. In the absence of all these factors, there is a strong likelihood that gold will cont inue to rule the roost
When some currencies devalue themselves, they have far-reaching ramifications for other currencies. Amidst the ongoing currency war, the Swiss franc is one currency that rivals gold as a safe haven. Though a steadily rising Swiss franc may sound like great news for its economy, ironically, it has been a concern for the Swiss National Bank (SNB), the central bank of Switzerland. An appreciating currency is a big dampener for an economy that depends significantly on exports. A testimony to this is the recent move by the SNB wherein it announced a "minimum" exchange rate target of 1.20 francs per euro. Consequently, the Swiss franc fell 7-8% to fall in line with the central bank's target. In fact, the central bank has expressed its willingness to create Swiss francs to buy "unlimited" amounts of foreign exchange. As has been aptly pointed out by The Economist, this scenario is pretty much reminiscent of the 1930s. During that period when certain countries went off the gold standard, they gained a competitive advantage against their rivals in the form of a cheap currency. This put a lot of pressure on the other countries to abandon the gold standard as well. As result, when one country devalued its currency, the other had no option but to follow suit. Now, this forms a self-perpetuating loop of endless currency devaluation exercises. A similar episode is being played out today in the form of more and more quantitative easing (QE). In such a situation, gold is the only real currency or preserve of value that is safe from the hands of central bankers. You cannot mint excessive gold the way you can print paper money. Similarly, you cannot impose capital controls on it or fix price targets. In the absence of all these factors, there is a strong likelihood that gold will cont inue to rule the roost
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