Recently, our partners at Moonshot unearthed a fact that surprised many. Contrary to the popular belief that the American dollar is considered to be the most powerful or strongest currency in the world, consistently rising in value against foreign rivals, it was revealed that 10 years from December 2012, the Swiss franc was unchanged against the US dollar. How did this happen?

CHF to USD exchange rate

We are the champions, aren’t we?

Over the years, not only has the Swiss national currency kept pace with the mighty dollar, but it has actually surpassed all other leading currencies since 2010. This trend has further accelerated over the past 3 years.

Swiss franc trade-weighted index since 2010
Source: The Financial Times

The decade spanning from 2012 to 2022 was an exceptional period in almost every respect. It was dominated by quantitative easing (QE) as well as unprecedented levels of economic support paid out by the world’s leading governments to prevent national recessions resulting from the Global Financial Crisis (2007-2008), and later, the COVID-19 pandemic (2020-2021).

All of this new money was intended to support businesses and encourage them to invest in growing output, creating more jobs, and improving productivity. While some of this influx was indeed used for these purposes, a significant portion found its way into various assets – both public and private – creating a worldwide bull market in shares, bonds, real estate, collectibles, cryptocurrencies, and almost everything else under the sun.

However, amidst this wealth accumulation from soaring stock, bond, and property prices, the crises evoked investor anxiety. This unease was magnified by the growing political divide in many countries as populist leaders came to power in the US, the UK, and other regions. In February 2022, the fact that this anxiety was not misplaced became very much evident with Russia’s invasion of Ukraine.

Walls of worries

In essence, despite the booming markets, global economies were besieged by major worries. Although barely noticeable in the initial years of the decade, these apprehensions gradually surfaced, notably reflected in the prices of traditional safe harbors such as gold.

Gold price (in USD per ounce) as of early December 2023
Source: Live Gold Price

After nearly seven years spent forming a substantial baseline, the yellow metal’s price began to rally in the first half of 2019, soaring rapidly to a new record level in early 2020 as the COVID-19 pandemic spread across the globe.

Simultaneously, other traditional safe-haven assets, notably US Treasuries and the US dollar, also experienced significant gains. It would have been surprising, to say the least, if the Swiss franc had not mirrored this trend. For more than a century, Switzerland and its currency have stood among the most favored safe havens, attributed to steadfast neutrality – proven during two world wars – stable politics, sound economic management, and persistently undisturbed social order.

That said, as any seasoned investor knows well, no market trend can last indefinitely. Even though our currency has been the refuge of worried investors for several decades, the causes of their anxiety could fade before long.

A bear and a bull

In October 2023, Peter Kinsella, head of FX strategy at Union Bancaire Privée, was interviewed for the Financial Times (FT) and expressed his bearish concerns for the Swiss franc. He believes that geopolitical anxiety, coupled with over CHF 100 billion in support from the Swiss National Bank (SNB), have been the main drivers of our currency’s appreciation to all-time highs.

With domestic inflation under control as a result of the franc’s strength, and lower inflation rates now representing the dominant trend among other developed nations, Kinsella argues that the SNB will surely cease its support operation. If, additionally, geopolitical worries were to subside, the two main reasons for the currency’s strength would be eliminated, most likely leading to selling pressure.

Within days of the debut of this Financial Times article, it was rebutted in a letter to the FT from Hanspeter Jenni, a retired managing director of UBS in Zürich. Jenni highlighted that the SNB’s CHF 100 billion support initiative was a drop in the ocean compared with the many hundreds of billions it has spent buying euros and dollars over the past decade in an effort to undermine the franc and bolster the competitiveness of Swiss exporters. On top of that, Jenni argued that low Swiss inflation didn’t diminish the franc’s appeal but, in fact, enhanced its status as a safe haven for foreign investors seeking yield.

The truth is – both men make compelling arguments in support of their views. At Le Bijou, however, we believe that the crucial issue is not the SNB’s support operations, but the troubled times we live in. While Kinsella predicted – rather obviously, perhaps – that these tumultuous times would end at some point, he failed to address the most important issue: “When?”

Switzerland is our refuge

Reverting to the Moonshot research that we cited earlier, it included a chart tracking the price of gold and anticipated that, if gold rose above the level of USD 2’000 per ounce, it would be “set for a sustained uptrend”. The most recent version of that chart shown above (“A bear and a bull” section) demonstrates that the price has recently done exactly that. Many analysts predict that, as a result, gold will rise to USD 2’300 per ounce or beyond in 2024.

As the world’s oldest hedge against geopolitical and economic disorder, gold has long been a measure of investors’ overall level of anxiety. Switzerland is the world’s largest exporter of the metal and reflecting that, as well as its shared status as a safe haven, the Swiss franc has some correlation with the gold price. As can be seen in the following chart: where gold goes, the franc tends to follow, especially in recent times.

Gold spot price vs. US dollar to Swiss franc exchange rate
Source: MacroMicro

Based on these two long-established “anxiety indicators”, predictions of a near-term end to the world’s persisting disorders seem overly optimistic. Indeed, one has little need for esoteric charts when merely scanning the news confirms the reality of so many unresolved threats to the global economic and political equilibrium.

Until these persistent dangers either materialize and overcome, or ​​are simply forgotten and fade from focus entirely, it looks as if the safest place for your investments, whether in shares or real estate, seems to be Switzerland.

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