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In what could be described as a rather stunning move, the Swiss National Bank (SNB) has decided to cut the interest rate on sight deposits at the SNB into negative territory. This move was necessary to defend the currency against renewed speculative positions which pushed the EUR/CHF exchange rate down again, thus increasing the pressure on the Swiss economy. As the volatility on the financial markets moved up, market participants were once again running towards the Swiss Franc as it’s still considered to be one of the few ‘safe haven’ currencies out there.

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The president of the SNB is also pointing a finger to the Russian Ruble crisis as the flight of capital and liquidity from that country is moving towards either the former USSR-member states or Switzerland. The total amount of the capital flight out of Russia this year will very likely top $150B and as you can imagine, even if only 10-15% of that amount would have been used to purchase Swiss Francs, the influence on the exchange rates of the CHF will be enormous. And indeed, in the past few weeks there definitely was some upward pressure on the CHF which resulted in the central bank having difficulties to defend the proposed EUR/CHF exchange rate of 1.20.

With this move to put the interest rate for sight deposits below zero, the SNB once again shows its determination to defend the exchange rate using every strategy in the playbook. The negative interest rate should act as a deterrent for people considering to purchase Swiss Francs as a safe haven investment as it makes the currency less appealing. This will obviously have huge implications for the CHF, the US Dollar and gold.

SNB President Jordan. Source

The main question which need to be answered (but cannot be answered) is how effective this deterrent is. Will a negative sight deposit ratio of -0.25% be sufficient to scare off investors looking for a safe haven? Maybe. But let’s assume it does work, and investors are looking for different safe havens than the Swiss Franc.

The first currency coming to mind is obviously the US Dollar. The economy is booming again (despite some dubious numbers and the current crash of the energy-related sectors), and the Federal Reserve will very likely increase the benchmark interest rate in 2015. This should make the currency quite appealing to investors and could strengthen the US Dollar even further. However, gold could also enjoy a boost as it’s definitely still is a safe haven for capital. Despite the recent slump in the gold price, it still is one of the (if not the) preferred assets to hold in case one wants to safeguard its capital.

This is also the position of major bank HSBC which tends to agree with out thesis as one of their analysts also indicated that putting the brake on the CHF might benefit the demand for gold. We think this is definitely the case for the capital flight of rich Russian citizens. Their country has continuously been buying gold through its central bank and this is obviously something which they keep in mind when deciding what to convert their worthless Rubles in.

The next few weeks and months will be interesting, as people and companies which are withdrawing their money from Russia really don’t have that many choices to choose from, and we expect that gold could start shining again.