As investors in the constantly changing world of investments, we look for a constant – an investment that is predictable, something we can save, rather invest in. For centuries, we thought that investment was gold, and it was . . . until it wasn’t. Switzerland was the last developed nation to sever the link between gold and it’s currency – the Swiss franc or the “Swissie.” That happened in 1999. Since then, the Swiss central bank has tried to peg its currency directly to the euro. Of course, whenever the euro has troubles, Europeans flock to put their money into the Swiss franc, which drives up the value of the franc, making imports expensive for the Swiss. To maintain that artificial price, the Swiss central bank has to spend huge sums of francs to buy euros. They are reaching a point where they can no longer afford the franc being tied to the euro. It is just too expensive.
Today, Switzerland is voting on whether to require their central bank to hold 20% of their capital in gold, compared to 7% now. If passed, the price of gold is expected to jump 5% tomorrow and another 20% over the next few weeks. Of course, passage would be ruinous for the bank if gold went back to $300/oz. The point is — gold is also not a constant. It is a heavy, dumb metal that pays no interest and costs money to protect. Plus, you cannot sell it for more than people are willing to pay for a heavy, dumb piece of metal that pays no interest and is expensive to own. It is worth whatever the market says it is worth, via supply and demand — no more and no less!
If all nations could agree on a price to sell and buy gold, a constant could be imposed on the market but “gold-bugs” are almost always Libertarians, whose philosophy doesn’t approve of any market manipulation, such as price-ceilings or price-floors.
Like fond memories of your high school sweetheart, remembering the glory days of gold just makes the heart ache . . . for no good reason. The genie has escaped the bottle!