Gold Videocast: Swiss Franc No Longer a Safe Haven; Time to Build Your Own Gold Standard (Video)
In December’s Gold Videocast, Peter Schiff responds to the Swiss voters’ rejection of the “Save Our Swiss Gold” initiative. He explains why the results of the referendum spell the end of a stable Swiss franc, but also the long-term success of gold. With no truly sound, safe-haven currencies left in the world, both Swiss and international investors will inevitably return to gold to protect their savings. Peter stresses that the Swiss vote is a wake-up call to the world: you can’t rely on central banks to protect the purchasing power of your currency. However, you can start your own, personal gold standard today.
Follow along with this full transcript:
Over the weekend, the people of Switzerland decided to vote against the Save Our Swiss Gold Initiative. Although I believe the initiative might have enjoyed more popular support had it been labeled the “Save Our Swiss Franc Initiative,” which I think might have been more descriptive of what the initiative would have achieved had it been implemented. Unfortunately, the Swiss people were highly influenced by a massive propaganda effort on the part of their government, [and] their central bank. In fact all of the world’s central banks and major financial houses were filling the airwaves or the print media with all sorts of messages to the Swiss on how they need to vote down this crazy, radical, hair-brained scheme.
Of course, overlooked in all the conversation was the fact that up until 1999, the Swiss had better than 40% of their reserves in gold. Was it creating chaos in Switzerland in the 1990s or the 1980s? No. I mean the Swiss economy was prosperous. It was the envy of the world when the Swiss franc was as good as gold, when the Swiss franc was the last currency still backed by gold, which made it the last legitimate currency on the planet earth.
All the other currencies were mere fiat and the Swiss franc stood alone as legitimate currency that has some gold backing. The idea of going back to something that worked and jettisoning something that has failed made perfect sense. But it really was a threat to the powers that be, to the establishment, to the endless money printing, quantitative easing the mean that inflation is good. We need inflation, inflation is the key that unlocks economic prosperity and therefore the Swiss need to have a currency that is not backed by gold because otherwise they won’t have the inflation that everybody so desperately needs.
If the Swiss had voted in favor of this initiative, this would have limited the ability of the Swiss National Bank to create inflation. They couldn’t fulfill their promise to print as many Swiss francs as they had to, an unlimited supply to keep the Swiss franc from rising against the sinking Euro. What would have happened if you had an island of monetary sanity in a sea of insanity? The Swiss economy would have prospered, the Swiss citizens would have grown wealthier as their franc got stronger and as their cost of living went down. Then that would have stood out as a shining example for all to see that this idea that we need inflation is nonsense, that “a strong currency is bad” is nonsense.
Nobody wanted the Swiss to be an example of how a sound currency could help an economy prosper. They wanted to make sure that Switzerland committed the same sins, was taking the same drugs as everybody else so that they couldn’t look better by comparison. You really had a tremendous interest in suppressing this vote, in convincing the Swiss that it would be monetary suicide to back your currency by something other than euros or dollars.
Think about that. I read an article that said it would be crazy to have 20% of your assets in one thing, meaning gold. But they can have 100% of their assets in euros and dollars? I mean how is that conservative? Wouldn’t having a fifth of your assets in gold be better than having none of your assets there and betting everything, betting the farm, on the euro? Why does everybody think the euro is so great? It’s universally accepted that the euro is flawed. In fact I think that dollar is even more flawed than the euro, but certainly the consensus, the conventional wisdom, is the euro is going to lose a lot of value. Well if that’s the case, why would the Swiss want to hitch their wagon to that horse? I mean, if the euro is the Titanic of currencies, why would you want to go down with it?
Ironically, I think the dollar is in even worse shape than the euro. The majority of people, I’m sure if you ask the majority of Swiss, they’re probably very negative on the euro. Why do you think the Swiss didn’t join the euro in the first place? They didn’t want any part of that currency. They wanted to preserve the Swiss franc. Well now they’ve just voted to jettison the Swiss franc and adopt the euro by decree or de facto. In fact, by rejecting a return to a gold standard or a modified gold standard, what the Swiss have done is embraced a euro standard. Why everybody thinks a Swiss franc backed by euros is going to be stronger than Swiss franc backed by gold, and of course, by strength most people think that’s weakness.
See, I think the threat was, and people thought, “Oh, if the Swiss are dumb enough to back their currency by gold, the Swiss franc is going to gain in value and that would be bad.” The Swiss need to make sure they vote for a weak franc, because a franc that loses value is good for Switzerland, because the Swiss people need a rise in cost of living, just like everybody else.
That is all of the nonsense that is out there. But as soon as the market opened for trading on Sunday night, gold dropped about $40, it traded below $1150. It got down closer to $1140. It was a new multi-year low. Silver was down almost $2, and of course, they weren’t even voting on holding silver. Silver just got caught up as collateral damage to declining gold.
I wasn’t expecting such a big reaction because nobody actually expected the initiative to pass. So I don’t think any Swiss gold buying had already been baked into the gold cake. I don’t think there had been any premium in gold to reflect the fact that an initiative that nobody thought was going to pass was going to pass. But I guess the psychological damage in the position of the market was so vulnerable and maybe the trading was very thin on a Sunday evening that they were able to push the market down.
The one day sale didn’t last very long because by the time trading commenced in the United States, the losses has been reduced substantially. Then when US really started trading, we had a big rally and gold ended up closing about $70 higher than the overnight low. Silver had even more spectacular rally, about 17%. I think it rallied about $2.50.
Obviously, had the Swiss surprised everybody and voted for monetary sanity, voted to back their paper currency with actual gold – Had they actually done the smart thing, there would have been a rise in the price of gold, certainly because (A) nobody expected it, and (B) it would have meant that the Swiss National Bank was going to be a significant buyer in the gold market.
I actually believe that the “No” vote from the long term perspective is even more bullish for the price of gold than had Switzerland voted to back their currency 20% gold. Now, why do I think that? I think eventually Switzerland is going to have to back the franc by gold and so will all the other countries if they don’t want their currencies to be worthless. But the longer it takes for the Swiss to come to their senses, or anybody else for that matter, the higher the price of gold is going to be when they do that. You see, if the Swiss had adopted this it would have put the brakes on the money printing. It would have made it impossible for the bank of Switzerland to keep its promise to print an unlimited quantity of Swiss francs because there isn’t an unlimited amount of gold to buy.
The money supply in Switzerland would have had a check. They would not had been able to increase their balance sheet and keep pace with the ECB. So this would have slowed down the Swiss money printing, Swiss inflation, and it might have left the Swiss franc as a real safe haven alternative to the euro. Right now people think that the dollar is a safe haven. They don’t realize they’re jumping out of the frying pan into the fire but once people realize that we’re not out of the QE business, we’re going to do more QE than Europe and Japan combined, where are people going to turn? They can’t turn to the Swiss franc because the Swiss franc is the euro.
If you’re worried about the euro, and then you find out that the dollar is just as bad or worse, what are you going to do? Gold will be the last man standing. By not adopting this initiative they take the Swiss franc off the table as a viable alternative to gold. Had the Swiss franc been required to be backed by gold, that would have created more confidence in the Swiss franc, it would have made it a better safe haven for people who are worried about the euro, the dollar, or the yen. They would have sought out refuge in the Swiss franc and I believe that a strengthening Swiss franc might have put some breaks on Europe. Because as the Swiss franc gained in value against the euro, it would expose the problems in the eurozone. So because the Swiss rejected this, that means more inflation in Switzerland, more inflation in the eurozone, more money printing all over the world, which means an even greater demand for gold.
You know, if the Swiss central bank is not going to buy gold on behalf of its people, what do you think the Swiss citizens are going to do with their own money? They’re going to buy the gold themselves. Certainly a lot of the people who voted in favor of this initiative will go out and buy gold on their own. They know the Swiss franc is going down and they don’t want to go down with it. They don’t want to ride the ship to the bottom. They want to preserve their purchasing power and so they’ll buy gold.
In fact, even more, I think a lot of the Swiss citizens who voted against this initiative because they were scared and they voted against it, will also buy gold. Maybe they didn’t want to force the Swiss Bank to buy gold but that doesn’t mean they’re not smart enough to buy it themselves because once they realize that there’s no limit on money printing, then why hold the currency that is going to lose value? In fact, the Swiss are probably going to end up adopting negative interest rates, so not only is your Swiss franc going to be losing value while you hold it, but [you’re going to pay them] for the privilege of holding a currency that’s losing its value. If you don’t want to pay the holder currency losing value, what is your escape valve, what is your safe haven? It is gold.
In fact, thinking about it from a historical perspective. If there’s a chance that we saw the lows for the entire gold move on Sunday night, it would be ironic and then I think makes a lot of sense that the Swiss “No” vote on adopting even a modified gold standard would mark the low point for gold. Just like you have the Bank of England dumping a bunch of gold at the lows. I mean actions around central banks sometimes mark key points and the fact that the Swiss said, “No to gold, we don’t want it” – That might be the day that gold actually bottomed out and now we’re resuming the bull trend. Only time will tell whether that is the case but again if it’s not the absolute bottom, I think it’s close enough not to worry about it. I think that people need to be buying the gold that the Swiss citizens just told their bank not to buy. And not only the gold, also silver. Because if gold goes up, silver is going up. So buy both metals.
By the way, we have got a great special going on right now at SchiffGold, where we’re selling one ounce silver bars at 79 cents over spot. Now, you’re not going to find a one ounce silver bar with that small a premium over spot anywhere on the internet. We have a limited time where we’re able to offer this special. I think it’s only five or six days. So you want to take advantage of not only a low price of silver, but a very low premium over the spot price to buy your one ounce bars which are ideal for barter should circumstances arise one day that would make barter necessary. You want to get these silver bars now while they’re cheap.
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