Gold Trader: 'Switzerland Wants to Replace Foreign Currencies With Gold'

How significant is the decision of the Swiss National Bank for the global gold market? Which impact will it have, and will this impact have a long-term effect?

Florian Grummes: I don´t think it has a very significant long-term effect for the global gold market. Switzerland is a small country. Yes Switzerland is very important for the global gold market as a turntable for physical gold moving from west to east but the Euro isn't playing any role in these transactions.

But the impact will be some kind of increased “loss of confidence“ in central bankers and in the international fiat money system. It is actually quite deflationary and means that Germany won’t be able to leave the Euro anymore.

Is gold likely to exceed US $1,300?

Florian Grummes: Gold is already very overbought short-term and is flashing similar warning signals like we have seen at the last two important tops in 2014 at $1,392 and $1,346. The main driver has been the breakout above the 1.000€ level during the last 3 weeks. The technical target is 1.140€ and we are nearly there. Following that a retest of the breakout level (1.000€) would be typical, meaning Gold should correct down to around 1.035€ in the coming months. The ECB meeting this week might bring a confirmation or a disappointment for the huge expectations the market has build up over last couple of months. Either way the Euro is ripe for a short squeeze and a recovery.

In the US-Dollar, and that is the most important way of analyzing the gold market, Gold is still moving in a descending triangle formation. But the technical picture has improved quite a lot during the last 3 weeks. I still think this bear market is not over yet but if Gold indeed manages to push through the $1,300 level we will see not only $1,350, but probably $1,500 this summer. I personally think Gold will fail to break through $1,300 now and expect another and final leg down in this bear market. But right now there is zero confirmation for this thesis. Another interesting point is that Gold is way too expensive in comparison with Oil at the moment. These levels are not sustainable. At the same time this means huge improvements for Gold stocks as their cost of production has fallen quite a lot due to the crashing oil price. 

Which other factors, apart from the SNB decision, influence the price of gold today?

Florian Grummes: The main factor still remains the futures market in US. With paper money you can buy and sell a lot of Gold whether you have it or not. The physical market only smooths out the exaggerations. Right now Asian demand is cooling down, as Asians don't like to buy these parabolic price hikes… Also from mid of February seasonality is turning negative. A main driver of course can be the Gold ETFs. We have seen the biggest inflows since 5 years last Thursday and Friday. If this becomes a new trend Gold will continue to be strong.

At the end of November, the Swiss voted No in the referendum to boost the Central Bank’s gold holdings. Now, with the price of gold going up, will this decision get some new meaning or importance?

Florian Grummes: Actually the Swiss Central Bank somehow came closer to the requirements of the initiative, as one of the reasons of the Swiss initiative was the wish to remove foreign currencies from the balance sheet and replace them with Gold. Now that the Swiss Franc is not tied to the Euro anymore it would be much easier to cover a part of the Franc with physical gold. The main benefit of the initiative was that this topic received some attention in the media and people actually really started to think about our fiat money system. At the moment Gold has become much cheaper for Swiss people and as far as I heard this has increased Gold demand in Switzerland since last Thursday…