Gold continues to make new highs against the worldâ€™s major currencies, except one: the Swiss Franc. After going above 1400 Swiss francs per ounce in May 2010, the price of gold in that currency has since moved in a sideways range where it now sits at 1296 [a chart can be linked to here]. Not uncoincidentally, the Swiss franc has emerged as a safe harbour for those seeking an escape from the instability of the Euro zoneâ€™s financial system. The result is that the Euro/Swiss franc exchange rate now serves as a barometer of perceived Euroland risk.
What makes the Swiss franc so special? Exploring this question in the latest issue of The Economist, the magazineâ€™s Buttonwood columnist cites low inflation (1%) in Switzerland as well as a current account surplus equal to 15% of GDP. Not to mention that the governmentâ€™s budget is expected to be essentially balanced for the current fiscal year, and that its public debt to GDP ratio sits at 53% — by todayâ€™s promiscuous standards, thatâ€™s positively Scrooge-like.
While those numbers surely explain part of the Swiss francâ€™s relative strength versus gold, a fuller explanation must take the countryâ€™s significant gold reserves into account. On a per capita basis, Switzerland has the highest gold reserves among industrialized nations. It holds 4.30 ounces per person. That compares to 1.34 for Germany, 1.30 for Italy, 1.20 for France, and 0.84 for the United States [see table here]. As for Canada, our central bank indicates that it owns 100,000 ounces of gold [see note 1 here]. Divide that by 34 million, our current population, and one arrives at a miniscule 0.0029 ounces per capita.
Not even the Swiss, to be sure, possess enough gold to back up its entire money supply. But with reserves at about 84% of total currency in circulation, the Swiss are closer than its counterparts and its currency is showing it.