Here are three reasons why you should the Swiss 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 equal 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 Golden Rule
By now, I assume that all 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 by 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!
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 eurozone 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 eurozone 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!?!
