Safe Haven Test: Gold vs Swiss franc. SNB edition.

Aibek Burabayev - Contributor - Metals

Today is surely Swiss National Bank’s day after it abandoned the cap for EUR/CHF cross which was introduced in September 2011. Swiss franc surged for a record against everything that can be traded. What are the first associations when we are thinking about Switzerland? Yes, first is gold, then luxury watches and of course chocolate. This country has had the gold of the world stored in its banking vaults and a safe currency, but now the Central Bank is nervous because of the currency’s excessive appreciation. So today’s shocking Swiss franc move inspired me to compare both instruments boasting a safe status.

Below is today’s comparative chart of gold and CHF against USD. I will put an inverse cross of CHF against USD in all charts for easy perception – both gold and franc will be displayed as the base currency and the dollar will be the quoted currency (usually it is traded as USD/CHF - dollar is base currency, franc is the quoted currency).

Just after the SNB announcement, the market lost its liquidity as everyone was shocked by such an unforeseen move (recently SNB spokesman declared that currency stability is a key element of their policy) and the franc flew to 37% gain level at once. Gold also started to elevate, but the move was comparatively moderate. At the moment (2 pm EST), the 1 day growth is almost 2%. The franc stopped soaring and calmed down to almost a 16% gain. Just to show the difference, when SNB introduced its peg in 2011, the Franc devalued. It showed a relatively modest 9% immediately after the announcement. So this time it was a real shock for the market.

To understand the comparative power of gold against the franc, I will be adding more time frame-charts with longer periods.
Next is the 1 year relative dynamics of the two instruments.

In the meantime, both gold and the franc on a 1-day and 1-year graph are moving in the same direction with more volatility in gold. Only at the end of 2014, gold started to diverge rising against dollar while the franc continued its fall. Today, SNB returned power to the franc. 1 year summary – franc gaining 3%, rocketing it from -11%. Gold is making 1.57% which also reversed from negative territory.

Here comes the more interesting time frame – 5 year.

Here we can see why gold and CHF are usually put together when one mentions safety. They move head to head (highlighted with green arrows) for years. But I want you to focus on another interesting behavior. I highlighted with red arrows and the black rhombus the time when SNB launched its peg for EUR/CHF (it immediately affected the USD/CHF). Right after that, both instruments started to diverge: gold continued in an uptrend and CHF, on contrary, lost the 1 year gain. This artificial intervention in the market was clearly depicted by the price on the chart. And this is not the last interesting thing. If we will look closely to the gold trend, the natural move would be stalled at $1500-1700 level. The market would then fall back to new normal $1000-1200 level. Instead, the trend became steeper and the price soared beyond $1900 and then fell back to a normal curve at $1500-1700. Gold, more than franc, tends to inflate “bubbles” which burst from time to time. And right after such burst, these two safe havens met on the graph again. But to answer our title question, 5 years is not enough as both showed close results just below a 20% gain.

Below is this century’s chart of dynamics for past 15 years (from December 1999).

I bet now it’s clear which one is saving your money the most. Gold is the winner. If you were wise enough, or not so greedy to cover longs in 2011-2012, you could have gained more than 6-fold on your investment. Even these days you would still be making decent 338% gain. Franc just made 80%, a laughable return if compared to gold. From 2002, both managed to be in green all the way up to date and therefore this couple confirmed its safety status.

Best wishes and lucky trades!

Aibek Burabayev Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

8 thoughts on “Safe Haven Test: Gold vs Swiss franc. SNB edition.

  1. I would like to give you only single suggestion that check this study for a Time frame of 1970 to 2000 and 1970 to 2015 Both separately, and if you will provide that in your next post, then and then whole situation will be batter explained and therefore, readers will be in a batter position to judge or evaluate study in a broader perspectives.

    1. Dear Rasesh,
      I don't want to postpone your suggested comparison. It's done for you now.
      You were right, 1970-2000 is quite outstanding period for comparison. Swiss franc's gain exceeded more than double that for Gold. Seems fiat money were more valuable those days 😉
      But at the end of the day the Gold is still the winner even on 1970-2015 time frame.
      I added also peak gains for comparison, same Gold is top gainer.
      But one thing is for sure Swissy is surely in the Game!
      Thanks for suggestion!
      Best regards, Aibek

      1. Dear Aibek,
        Thanks for entertaining my suggestion, backed with comprehensive study. In fact, i am not trader, adviser or anyway related with Gold However, since long back, just for acadamic purpose, i am studying Gold, and near about Year 1999, I predicted a very heavy bull run, which was actually begun after forming final bottom in year 2001, and i was continued with such my Bull View, till 2011, and afterwards, i turned bearish for Gold. so a period between Year 1999 or 2001 To 2011 had broke a Record of about past 200 years' Gold Movement.

        With a view to all above, now to get the best picture we must compare Gold with it's said Year 2011's pick levels, and if evaluate with same criteria, i think, Gold had furnished it's historical Bull Cycle, so in near future, as specially on the basis of five year's each slots for next time frame, Gold will continue to under perform just not with Swisy only, but even with any strong comparing counter parts like Ausi. / Canadian Dollar or China Yuan or Indian Rupee. Etc Etc.

        You are invited for Your feedback, and it will be precious for me. Thanks Again,

        With Regards,

        1. Hello Rasesh!
          Your post reminded me those funny days when word "derivative" wasn't yet a swearword :-). I started gold trading then. Nice days!
          Regarding end of bull cycle - I thought same and elaborated it in my first article
          But to survive trader shouldn't be biased. Bull or bear they are both inside us. And market is always right not we are.
          As I stated once gold break beyond $1300 I will negate bearish scenario.
          Live and see, best!

  2. Coming to conclusions on gold's price fluctuations based on only one country's currency is likely to produce poor yields.

    1. Dear Bela,
      In my last December post I showed YTD dynamics of most traded currencies vs Gold.
      I prepared for you separate 15 year dynamics of inverted dollar index (1/DXY) which shows potential of it's most tradable component currencies versus Gold/$ and Swiss franc/$.
      And Swissy still more valuable.
      Best regards, Aibek

  3. Excellent article. I knew a Navy Ensign (who was an accountant by education) who invested in gold in 2000. I didn't. Then I went back to school for my masters in Finance, but didn't have the time OR the computer internet expertise to follow the markets or to chart. Now, looking back, oh what a valuable lead I had but couldn't appreciate or understand what was occurring. But it is never too late!!! The beauty of the market is that there are also other opportunities and more trends to find.

    1. Dear Barbara,
      Thank you very much for this valuable feedback, I hoped that it will be someone's true story.
      And you are right, markets are moving and it will bring new opportunities, keep with us!
      Best, Aibek

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