GOLD received a boost on Thursday, soaring to near four-month highs as risk aversion weighed on the market, following a surprise move by the Swiss National Bank to discard its minimum exchange rate and to further cut its interest rates.
Analysts described the bank’s step as “shocking” and “unexpected” ahead of predicted bond-buying stimulus measures set to be announced next week by the European Central Bank (ECB).
Regenesys Investments CEO Devin Shutte said the Swiss franc is regarded as a safe currency. It strengthened 28% against the euro at one point after the decision was made as the central bank realised it was futile to keep the cap in place.
“But it is sure to cause more volatile markets with the present turbulence harking back to 2008,” Mr Shutte said. In the official statement, the Swiss National Bank said it was discontinuing the minimum exchange rate of CHF1.20/euro. At the same time, it announced it was lowering the interest rate by 0.5% to 0.75%.
The gold index on the JSE immediately traded higher, and ended the day 4.31% higher. The gold price increased 2% and was at $1,254.05 per fine ounce in the late afternoon from Wednesday’s close of $1,230.83.
Among individual gold stocks, AngloGold Ashanti ended the day 5.76% up at R127 and Harmony gained 5.73% to R32.46. Sibanye was 2.55% higher at R28.14.
The Swiss National Bank said the minimum exchange was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets.
“While the Swiss franc is still high, the overvaluation has decreased as a whole.”
It said the euro had depreciated considerably against the US dollar and this in turn, had caused the Swiss franc to weaken against the US dollar. “In these circumstances, the bank concluded that enforcing and maintaining the minimum exchange rate is no longer justified.”
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