Friday, November 21, 2008

Gold is Better Than the Swiss Franc

8 & 11 October & 21 November 2008

Over the past several months, most of the visitors to my site have been enquiring about the Swiss Franc.

The Swiss Franc remains my top currency pick.

But, and this is a big but... I don't like currencies.

Any of them.


Because currencies are managed by governments, and currency devaluation is the fastest, easiest fix for the economic ills that most upset the general populace.

Therefore, governments inflate the money supply and devalue their currencies in order to make debt repayment easier, to keep money flowing when confidence is low, to mask incompetence and greed, to punish saving and to reward spending, and for a host of additional reasons. Inflation is a quick and easy but ineffective fix, and governments have been doing it since time immemorial.

(The following chart is courtesy of the Aden Forecast. I recommend that you subscribe to this very insightful advisory service.)

As we are presently seeing, inflationary monetary policy always ends in tears - in financial exhaustion. But that has never stopped government leaders from relying upon inflation, because votes and popularity are won by immediate rather than long-term policy outcomes. It is a paradox, because inflation makes people feel wealthy even as it impoverishes them.

At present, gold is the strongest investment out there. Why? Because gold is not managed by any government. It is hard won from out of the depths of the earth. It is costly to find and to produce, and it is inherently scarce, particularly in times of economic uncertainty when increasing numbers of global citizens are seeking preservation of the value of their savings.

The entire fleet of international helicopters is now in the air, dropping money out of the sky to solve the present global financial crisis.

Unfortunately, throwing money at the problem doesn't fix the problem. It just cheapens the money.

Therefore, buy gold. It is a better choice than any paper-based currency.

As you can see, gold is getting ready to take off compared to the Swiss Franc (it will not very likely go up in a straight line, but all of the recent world economic and government policy developments are certainly fundamentally bullish for gold!).

Buy gold now for a doubling of your investment over the next one to three years.

My primary analysis of the intrinsic value of gold (Gold's 1980 High – Think $5000 - No $6000 - per Ounce) as an aggressive preserver of value can be found here.

Here is a list of my blog entries concerning the Swiss Franc:

1. Canadians, Buy the Swiss Franc Now!

2. The Swiss Franc Continues To Climb in Canadian Dollars.

3. My first compliment from Fleck.

4. Currencies 101.

5. Another Swiss Franc Buying Opportunity for Canadians.

6. All You Need To Know About Global Money Supply in One Place.

7. The Swiss Franc Is Still Strong.

. Use "FXF" (CurrencyShares Swiss Franc Trust) To Buy the Swiss Franc.

9. Gold is Better Than the Swiss Franc.

10. Swiss Franc Alert

11. Gold Isn't Gaining All That Much... In Canadian Dollars!

Addendum: Many visitors to this site have enquired about how to purchase the Swiss Franc. The most direct method is simply to purchase Swiss Francs from a currency dealer. In Canada, Custom House Currency Exchange offers competitive rates. You may also wish to contact your broker about an exchange-traded fund or a Swiss Franc government bond (which would pay interest on your investment, but could be subject to decline in value even if the currency itself rises relative to other currencies). Additionally, some banks permit investors to maintain foreign currency accounts. Sophisticated investors may wish to enter this trade through purchasing futures contracts or other types of options, such as calls. Many brokers specialize in foreign currency purchases, so I suggest that you start with a broker familiar to you. As I understand it, Pamela and Mary Anne Aden at Aden Research, for example, will execute foreign currency trades for their customers. But for those who don't know how, simply purchasing the currency from a competitive currency trader (possibly your local bank, or a trader recommended by your bank) will be a good place to get started. Ideally the "spread" between the buy and ask price for the currency should be less than 4 cents on the dollar (roughly 4%). That is, you should not pay a premium of greater than 2% to purchase the currency. This being said, my own experience with currency dealers is that it is very difficult to exchange currencies in this idealized range. Our local broker's rates are much higher, for example. Never exchange currencies in large amounts at airports, hotels and other locations that are charging large premiums to provide a convenience service to travellers. Look for the best rates any time you exchange currencies!

August 5, 2008:
As currency purchases at fair exchange rates are extremely difficult to obtain, I am now recommending that mainstream investors simply purchase the FXF exchange traded notes, "CurrencyShares Swiss Franc Trust" (denominated in US dollars) through their broker. This exchange traded note uses the interest on its deposits to cover the management fees of the fund, with the result that you will receive modest interest income via this method.

Note (9 August 2008): Most global currencies happen to be weak against the US dollar right now, as the US market is presently driven by the fantasy that the US government's now $800 billion rescue of the financial system by "nationalizing" the government sponsored enterprises (Fannie Mae and Freddie Mac) and using taxpayer money to guarantee worthless bank assets will make everything "all right again." That fantasy will persist for a season, and then it will fade, as all fantasies do.

In the meantime, the Swiss Franc may not have bottomed for US investors. However, I note that the Franc is holding up fine against the Canadian dollar, as both are under pressure versus the US dollar, which is presently enjoying a transient upward move due primarily to concerns about the stability of the Euro. Pamela and Mary Ann Aden advise that the market value of the Euro is presently stronger than that of the Swiss Franc. My own take is that the Swiss Franc clearly possesses superior fundamentals compared to the Euro, which relies upon the historically unproven concept of international cooperation (don't expect the cooperation of the European countries to be maintained in hard times or in crisis!).

October 11, 2008: If you're interested in Swiss Franc Government Bonds, here is a recommendation from WikiAnswers. This brief note recommends EuroPacific Capital. Its C.E.O. and Chief Global Strategist, Peter Schiff, is a long-term US dollar bear who saw the present economic meltdown coming years ago. EuroPacific Capital is a secure and well-managed company, and I can certainly vouch for the reputation of Mr. Schiff, whose articles on the mismanaged US economy I have been reading for years on Safehaven.

While I am currently recommending gold as a superior store of value to the Swiss Franc, gold trades as both a commodity and a currency, with the result that its market price is much more volatile. If you are a long-term buy-and-hold investor, gold will certainly outperform the Swiss Franc as a long-term store of value. But if you don't like $100 price moves in a day (gold has had two such moves in the past month - including only yesterday!), then holding the Swiss Franc may prove less unsettling.

21 November 2008: My call on gold's superiority to the Swiss Franc was a bit early on October 8, 2008. However, as the following chart shows, gold reached its bottom against the (now only informally 20% gold-backed) Swiss Franc on October 24, 2008, and has strongly outperformed the Swiss Franc since that time.

Thus, my October 8 recommendation - that gold is a better long-term store of value than the Swiss Franc - still stands. However, for Canadian investors, the Swiss Franc has outperformed the Canadian Loonie for the duration of the present financial crisis, as the chart below shows.

Thus, Canadians have obviously done well to hold the Swiss Franc during this time of turmoil. Further, the US dollar is obviously in a topping process, with its strength at this point hinging only on the need of investors who are liquidating their malinvestments to purchase US dollars so that they can hold cash. The US dollar is certainly cruising for tougher times ahead.

(Chart courtesy of Clive Maund.)

Therefore, US investors would also be wise to be holding a portion of their savings in the Swiss Franc now, if they have not already done so, particularly if they require a less volatile store of long-term value than gold!

Gold of course remains the best store of value of all, and it is the true global reserve currency!


  1. Well said Laurence. I like your comment about throwing money not fixing the problem - just cheapening the money. Great picture choice and line up too.

  2. very readable and understandable presentation of the issue.

  3. Kevin wants to know where you get the cool graphics? Another hidden talent? Laurence Hunt Computer Graphics Creator?

  4. Thanks for compliments.

    By the way, gold is more volatile than the Swiss Franc. It just has a stronger fundamental upside argument.

    Graphics are easy. Some are from my reading, but most are from Google image search.

  5. Hi Laurence,

    Gold definitely does seem to be holding its reputation as the true reserve currency here!

    No expert on the Swiss franc or the currency markets, but this is an interesting article from the Financial Times on why the SF has lost some of its "safe haven" status of late:


  6. Thanks David,

    I appreciate your continuing interest in my site!