2011-SEP-26
Market action at the end of last week confirmed that the US Federal Reserve has disappointed traders; although the Fed's announcement of Operation Twist had been expected by many analysts, the market had been hoping for more quantitative easing. This disappointment, combined with Bernanke’s pessimistic assessment of “significant downside risks” to the US economy, has hurt all asset classes except the US dollar and Treasuries – in particular commodities. On Friday the gold price experienced a sharp setback of up to $101.90, or nearly 6%, to $1,639.20 per troy ounce. However, the Swiss Stock Exchange said it will soon introduce a gold currency that is designed to offer new clearing services to its trade customers.Fears among investors that the world economy is slipping back into recession have intensified since the middle of last week. The Fed’s Operation Twist is designed to invest another $400 billion in the purchase of long-term Treasury bonds – the same amount is going to be sold in the form of short-maturity government bonds. The Fed´s move is designed to keep long-term US interest rates at low levels. Many market participants do not like the idea that the Fed’s new monetary strategy runs through the end of June 2012. If the Fed does not follow through with additional programmes to improve the liquidity in financial markets, further asset sell-offs could be prompted by banks and hedge funds hungry for cash.
This development would lead to deflationary pressures that will probably weigh on equity, commodity and precious metals prices. Although gold has often held up well during deflationary periods, last week´s drastic price crash in the precious metals sector suggests that investors have started to redirect their portfolios to adapt to changing market dynamics. Hedge funds have been heavily involved and highly leveraged in the paper gold and silver markets in the last few months; in order to cover losses and margin calls on other assets, funds have been forced to sell gold and silver positions.
However, the Swiss Stock Exchange has not been deterred from new involvement with the yellow metal. Together with Scoach Switzerland, the stock exchange for structured products, the management has the plan to introduce the listing and trading of products in so-called XAU gold units – which have an exact value of one troy ounce of gold – in October. Gold will act just like a currency: paying the profits of investors from speculative transactions. The same applies if an investor had to pay the bill on losses from transactions in Swiss financial markets – in this case the difference could be offset in the form of gold. Investors who want to make use of the new gold currency must open an account with Swiss financial services provider Six Securities Services. All transactions made through this account will subsequently be calculated in the XAU gold units that work in the same way as any other paper currencies such as the US dollar or the euro.
