After
joining together three recent events, this is the question I’ve been asking
myself.
1) The Swiss National Bank announced it was introducing
negative interest rates (NIRP) on December 18, 2014.
This
was done in order to hamper any defensive buying of Swiss francs by investors
wishing to protect themselves from devaluation of their currency (the euro or
the ruble, currently). Or more to the point, as regards the euro, to protect
the 1.2 CHF for 1 euro floor price, so that the Swiss franc does not
appreciate too much.
Perhaps
the SNB knows a sovereign QE program is coming and is anticipating a run on
the euro and a flight to the Swiss franc, which would break the “fixed”
parity it is defending at high costs.
2) Mario Draghi is set for a press conference next Tuesday, December 23. Thus this
decision by the SNB would have preceded the eventual announcement of a QE
program.
3) The CME, the American regulation agency, will implement new rules
supposed to limit volatility on the precious metals prices starting Monday,
December 22, one day before Mario Draghi’s speech.
As soon
as gold and silver prices fluctuate beyond a certain channel, the market will
be halted for five minutes.
More
precisely, when intra-day fluctuations will surpass $100 for gold and $3 for
silver, the market will be halted for five minutes. These are 8% and 17%
fluctuations, respectively.
This
five-minute trading halt will probably be enough time for the “commercials”
to exit their short positions on gold and silver.
It is
interesting to note that these limits haven’t been put in place before by the
CME, which would have limited volatility to the downside, especially for
silver, that plunged dramatically on May 1st, 2011, and April 15, 2013.
So,
either the CME has really decided to act as a regulator (these new rules
apply also on the downside) or it expects strong volatility to the upside for
precious metals and wishes to “control” prices beforehand, during and after a
sovereign QE announcement.
The
timing of those three events is interesting and it points to an announcement of
a sovereign QE program soon (perhaps on Tuesday, December 22) by Mario
Draghi.
As far
as how a rapidly devaluating currency is faring, one just has to look at the ruble
priced in gold.
A quick
reminder: Russia has debt ratios and economic numbers that are much more
reassuring than those of Europe... So a rapid devaluation of the euro could
potentially very well happen too, following the announcement of a sovereign
QE program.
