GOLD in EUROs leapt to the highest price in 19 months in London trade Thursday morning as the single currency sank following the Swiss National Bank's shock decision to
stop pegging the Franc at CHF 1.20 per Euro.
The peg was first imposed on 6 September 2011 – the day that global gold prices hit their current all-time peak of $1920 per ounce.
"Markets tend to overreact when confronted with such a surprise," said SNB chief Thomas Jordan at
a press conference in Zurich on Thursday.
"The conditions we see today are not the ones that will be relevant for Swiss exporters in 2015. They should come back to a more reasonable level."
Any further rise of the Franc against the Euro, however, "could have serious implications for the economy," says UK consultancy Capital Economics, "given that Switzerland has typically sent nearly half of its exports to the Eurozone."
Eurozone equities rose 2% on average, but the Swiss stock market dropped 10%.
US crude oil contracts meantime rallied for a second session, nearing $50 per barrel – half the price of four months ago.
Gold also rose in US Dollar and Sterling terms, hitting 4-month and new 14-month highs just shy of $1260 and £830 respectively.
But for Swiss investors, gold dropped CHF 300 per ounce before steadying 12% down for the day at CHF 1110.
The Euro meantime lost 1% per minute for half-an-hour on spot FX quotations against the Franc, with bid/ask spreads widening sharply across all currency pairs.
Gaining 3.2% inside two hours, the gold price in Euros broke above €1075 per ounce – a level last seen during the Spring 2013 gold crash.
"[US] Fed normalisation and Dollar strength are considerable hurdles for gold," said Swiss bank and London bullion market-maker UBS in a new 2015 outlook ahead of the SNB news.
Cutting UBS' average 2015 forecast from $1200 to $1190 per ounce, analyst Edel Tully says lower bullishness in US gold futures – plus the 35% drop from 2011's peak – "should help limit the force behind a move lower."
Forecasting a 2015 average of $1215 per ounce, "There is
some upside potential," reckons Japanese trading house Mitsui's analyst David Jollie, saying that "any downturn in equities or bonds...might potentially boost the gold price."
Besides abandoning its Euro peg for the Franc, the Swiss National Bank also pushed its key interest rates further into negative territory Thursday.
Sight deposit rates for commercial banks using the SNB were cut from minus 0.25% to minus 0.75%.
Three-month interbank rates are now targeted between minus 0.25% and minus 1.75%.
