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Swiss Franc Weakness Is Good News For Gold at Trader’s Narrative





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To the amazement of the perma-bears, the US dollar is enjoying a huge rally (again). I’m sure many would like to know exactly why since the US economy doesn’t look like it is doing that well. I don’t pretend to know either but remember that during the bear market in almost everything, the US dollar was suddenly golden.

US dollar sentiment is once again at extreme with everyone long the US dollar and short the Euro. That love hate relationship goes even further than just the Euro as other currencies are getting sold.

The Swiss Franc is usually rock solid because of its perceived relationship with gold. Just saying the words “Swiss Franc” conjures up gold stuffed vaults nestled in snow peak mountain valleys. The currency and the commodity actually track each other very closely. Here’s a chart showing the Swiss Franc (black line - left scale) and gold futures (red line - right scale):

swiss franc gold futures comparison Feb 2010

As you can see, while they both topped out together, the Swiss Franc corrected much more than gold did recently. Since the two follow each other so closely, the question is, will gold fall down to close the gap? or will the Swiss Franc rise? To try to answer that, let’s look at the sentiment for each. We’ve already covered gold’s sentiment recently so if you missed that, take a look.

As for the sentiment for Swiss Franc, according to SentimenTrader.com, the public opinion of the Swiss Franc has only been this low (or lower) three other times in the past 5 years:

swiss franc public opinion sentimentrader Feb 2010

From a contrarian point of view, that kind of extreme pessimism bodes well not just for the Swiss Franc going forward but also for gold, given their relationship. This coupled with the recent gold sentiment tells me that while gold is at lofty levels from a long term perspective, there are are forces which are pushing it higher. Given the relationship between the Swiss Franc and gold, this will play out but I’m not sure when exactly.

It is important to note that on a long term chart, the Swiss Fran began a bull run which has lasted to this day. This, not surprisingly, coincides perfectly with the secular gold bull market which began in 2000 and 2001 (double bottom). Usually during a bull market sentiment doesn’t fall all the way to the basement and so it has been with the Swiss Franc. So while right now a reading of 34% is “extreme”, if we go back enough we see that this only lasts as long as the bull market does. Otherwise extremes in public pessimism occur around 5-10%.

Fun Trivia:
I bet you didn’t know: The central bank of Switzerland, the Swiss National Bank, is the only publicly traded central bank in the world. For more information, see this.

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5 Responses to “Swiss Franc Weakness Is Good News For Gold”  

  1. 1 DoctoRx

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    Just from a chart perspective, I like FXC and BZF over FXF. Any thoughts on the charts and sentiment on those currencies?

  2. 2 jesuscheung

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    how crazy will be if fed is publicly traded! large shareholders will have access to the dollar printing machine lol.

  3. 3 Babak

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    call me crazy, but I’d love to own shares of the Fed! why fight the Man when you can be the Man?

  4. 4 aashram

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    You make no mention of the SNB intervention, selling CHF

  5. 5 Babak

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    aashram, this is a well known issue and has been ongoing (off and on) for almost a year so as a chart guy I would assume it is priced in. For more, see this WSJ article.

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