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Another “safe haven” bites the dust.

September 07, 2011 – You couldn’t ask for a clearer, more powerful demonstration of the superiority of gold bullion over currency as a store of wealth than the Swiss have given the world over the past two and a half weeks. And yet a great many investors failed to pay any heed.

The Swiss franc was the last bastion of fiat money, a solid currency backed by stringent fiscal responsibility. As a medium of exchange it had few, if any, rivals. But the Swiss economy is relatively tiny, making its currency highly vulnerable to foreign speculation. So when investment demand drove the price of the franc up 17% from the beginning of June to the first week of August, the Swiss central bank got fed up.

The Swiss treasury slammed on the brakes, swamping demand with vast amounts of newly printed bills. Then, to make sure the message got across, they announced that they will cap the price of the franc at 1.2 euro. Poof! In just three days the franc plunged 8.5% against the dollar.

You would think that all those investors would have learned their lesson, but a great many retreated from the franc to – you guessed it, the dollar. Realizing that they got burned by the model of sound currency they started selling off gold to recoup their losses in greenbacks. That bears repeating.

Seeing that a strong currency was a poor store of their wealth, they exchanged their holdings in the one true safe haven for one of the world’s most troubled currencies.

So once again the gold bullion price got yanked back from a new record high. The one good thing about such insane behavior, however, is that the market will quickly shrug it off. The wide support of strong fundamentals will quickly overpower irrational resistance and keep the gold rally going.

There will always be some who stubbornly declare “that’s my strategy and I’m sticking to it,” even when presented with irrefutable evidence that the Dow has begun a cyclical bear while gold has entered a super-cycle.

Those left hopelessly stranded on the platform will watch the wise investors who bought gold bullion smiling and waving to them as the last train leaves the station.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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