3 Reasons Why You Should Buy the Franc

1. Strong Growth in the Homeland

The first reason why you should be stockpiling some francs in your piggy bank is that the Swiss economy has been as smooth as Johnny Depp‘s acting skills. During the 4th quarter of 2010, the Swiss economy grew by a decent 0.9%, bringing annualized GDP up to 2.5%. This ain’t half bad, considering that we saw a 1.9% decline in 2009.

Looking ahead, the economy should continue to do well, as companies still have huge piles of cash that can be used towards growth projects and investments. This could lead to job creation as companies will hire more people to help expansion. More jobs equals more spending! Boomshakalaka!

Now, some are worried that the rise of the franc could hinder Switzerland‘s export industry. However, these concerns may be a little overblown. For the most part, many of Switzerland’s exports are high-end luxury goods, which have inelastic prices. What this means is that demand for these goods is stable and isn’t as affected by currency appreciation as other goods.

Nobody gonna stop daddy from buying a new IWC!!!

2. The Gold[en] Rule

By now, I assume that all you forex and commodities traders are aware of how strong the franc and gold have been in 2011. This brings me to my second reason to buy the franc -its relationship to gold.

If you’ve finished all your lessons in the School of Pipsology, you’d know that USD/CHF is inversely correlated to gold prices. The reason behind this is that 25% of Switzerland’s money supply is backed in gold reserves! So whenever gold prices rise, the franc tends to benefit as well.

After doing some simple math, I found that USD/CHF has declined in price by about 6.0% so far in 2010. During the same time period, gold prices are up 5.5%! Coincidence? I think not!

USD/CHF vs Gold

Okay fine, it may not be a perfect correlation, but this relationship is worth keeping an eye on. Gold has yet to break below a key rising trend line – as long as that holds, I believe we’ll see some good support for the franc.

3. The “Safe-Haven” Factor

The last but definitely not the least reason to buy the franc is its simple “safe haven” status. Historically, the franc has benefitted in times of economic uncertainty.

For one, the Swiss are infamous for their political neutrality and their banking secrecy laws, which attract investors whenever there’s trouble brewing in the euro zone or in the U.S.

Secondly, investors like to buy the franc because it isn’t as exposed to the euro zone’s sovereign debt problems as the other euro zone economies. Recall that around the time when Pip Diddy had a few more strands of hair on his dome, Switzerland refused to join the EU band and preferred to stick to francs instead. Looks who’s suffering now!?!

Whether you’re a fan of fundamentals or a skeptic, you can’t possibly deny that the franc is one big apple (not the brand) in the eyes of the currency bulls. The question is, how do you plan on taking profit from it?


  • louis

    1 reason why you shoudn’t buy the franc:

    There’s a huge spider right in front of the Swiss National Bank!!

  • Zach

    I went short last week when it bounced of that 50% retracement / falling trend line ~ 8950.     Not falling as quickly as I’d like but all in all a good move.  

    I’m planning to bail out well before it get’s near 8550…. do you anticipate central bank intervention should the franc continue to strengthen?

    • Hedgehog

      Zach, after last year and the huge paper losses ($9.5b as of Q2 – imagine the losses now!!!) the SNB has to carry on its balance sheet, do you think they’ll attempt any intervention? They may, who knows. But logically if the intervention last year did not manage to weaken the franc but instead strengthen it further, would you risk billions to do the futile? 

      Yodel away SNB…..

    • Saxy4c

      that was a nice move zach, did same too, you happy with what you see?

  • Cuddykid

     Can’t see the franc’s momentum stalling anytime soon with the state of the US economy. 
    Apart from the retracements here and there, I’m short the franc all the way!