Gold Appreciation From European Woes

As has been discussed on this blog, the Swiss National Bank (SNB) last week announced that it would buy unlimited amounts of foreign exchange to prevent the Swiss franc appreciating any more in value. Therefore, what they are essentially announcing is a plan to print unlimited quantities of Swiss Francs, thereby pledging to devalue their currency until it can be devalued no further. The currencies that the Bank will undoubtedly be buying, moreover, will certainly depreciate over time, thus increasing the amount of downward pressure on the Swiss Franc.

This gives more credence to the view that essentially all currencies on the planet use the US Dollar, or at least other fiat currencies, as their reserve. This means that, as further downward pressure leads towards Dollar collapse, all currencies will feel the pressure and could, ultimately, collapse before the Dollar.

One of the last remaining ‘sound money’ systems in the world has effectively announced that it will no longer issue sound money. Whereas, in very recent history, the Franc has been one of the only currencies—if not the only currency—in which gold was not appreciating, this will certainly change in the coming months. There will then be more buying pressure behind gold and silver. Heretofore, Switzerland had been a refuge for the world’s flight capital, which led to a currency overvaluation. More evidence that in a global currency crisis like the one we are now experiencing, which transpires alongside the world’s banking and sovereign debt crisis, there are no safe-havens.

Unfortunately, one dire outcome of this is that, whilst central banks the world over deceitfully debase their own currencies through “stimulus” (and simultaneously and sneakily buy-up tangible assets such as gold, silver, agriculture and water), hardworking everyday people will, once deflationary periods are shaken out of the mix, see the currencies in which they’ve taken their hard-earned wages and salaries fall precipitously in value when compared to food, energy and, of course, gold and silver.

Since the beginning of the summer, when gold was trading around $1480 per ounce, it has moved upwards about 30% at its peak of about $1920 an ounce. James Turk forecast in a recent interview with King World News:

“I was expecting closer to 50% by the end of September and even though we are not at the end of the month and may not reach that 50%, there is a lot more left in this move… Gold is headed over $2,000 and if it doesn’t happen this month, it will probably happen in October.

So look at shakeouts like we have had today as yet another great opportunity to get rid of overvalued dollars, euros, pounds, etc., and trade them in for physical gold…. Importantly, Eric, even though the price of gold has risen for many years, it still remains undervalued by all of my historical measures…. More importantly, we know things have value because of their usefulness and right now physical gold’s greatest attribute is that it does not have counter-party risk….Unlike debtors of all sorts, whether individuals, companies or governments, gold does not default. This is one of the main reasons to own physical gold as the world’s financial system unravels around us….”

As reported today by Bloomberg, Treasury Secretary Tim Geithner will implore European governments to set up their fight during the current economic crisis in that region, as the Obama administration begins to imply that it is concerned Europe’s woes may hurt the U.S. Economy. This will be the first time that Geithner attends a session of Europe’s Economic and Financial Affairs Council or Ecofin.

This comes on the heels of Geithner’s trip to Marseille, France, where he told European leaders to “act more forcefully” in a meeting with the Group of Seven finance ministers and central bankers.

Certainly, the administration in the U.S is nervous about the turmoil in Europe, as Obama has recently blamed overseas instability for hurting his efforts to right the American economy.
Essentially, what Obama will prescribe is increased interdependence in Europe, as that continent moves increasingly towards true superstate status. Large European countries “are going to have to get together and make a decision about how they can match currency integration with a more effective set of coordinated fiscal policies,” Obama said.

The European crisis was “very, very damaging in the American economy last summer,” Geithner told Bloomberg. “It’s been a significant cause to the slowdown we’ve had this summer and I think it’s very important to the world that Europeans do what they need to do so that the problems they’re facing don’t spread, don’t add to the pressures on the world economy as a whole.”