Swiss Franc in Gold-inspired Setback

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The Swiss franc has corrected lower in sympathy with a major unwind in gold prices and signals that the recent currency debasement trade may have peaked for now.

Gold led its store-of-value proxies, like the franc, lower late last week: GBP/CHF responded by rising 1.30% from Wednesday through to Monday. EUR/CHF rose by 0.60%.

Underpinning the moves is the franc's tendency to behave in a similar fashion to gold, rising and falling alongside bullion during periods of inflation anxiety.

Swiss franc strength is typically driven by its store-of-value appeal in an environment where investors fear rising inflation and the erosion of fiat currencies.

Barclays has described the currency as “gold’s FX twin,” linking CHF performance to persistent concerns over inflation and monetary debasement.

"CHF and Gold are perhaps the only two liquid non-USD assets to hedge against uncertainty with JPY having lost that status some time ago. It is clear to us that the efforts from the SNB to curb CHF strength have and continue to fail. Verbal intervention has not been backed by physical (perhaps constrained by US politics on tariffs), CHF as done nothing but rally since the move to ZIRP," says Kamal Sharma, FX Strategist at Bank of America.

Demand for gold surged late last month as those fears intensified, drawing capital into assets perceived to preserve purchasing power over the long term.

However, that dynamic shifted following the nomination of Kevin Warsh as Chair of the Federal Reserve, a move markets viewed as reducing policy risk.

Morgan Stanley says the decision appears to have been influenced by unease over the pace of the dollar’s decline and the parabolic rise in precious metals.

Above: Chart showing gold's correlation on CHF.

"In our view, we think the recent parabolic moves in precious metals and weakness in the US dollar played a role," Morgan Stanley says, pointing to concerns about the speed and scale of recent market moves.

As gold and silver prices unwound, the Swiss franc, often treated as a fiat proxy for precious metals, also softened as defensive positions were pared back.

“Last week, precious metals sold off sharply after the announcement of Kevin Warsh as President Trump’s nomination to be the next Fed chair. His hawkish credentials eased fears about Fed independence and inflation spiralling out of control in the US,” says Kathleen Brooks, an analyst at XTB.

Despite the near-term correction, analysts argue that demand for the franc, gold and other non-dollar stores of value is unlikely to disappear.

“The US administration is planning to run the economy hot,” says Dario Perkins, economist at TS Lombard.

He explains that this strategy is built around tax cuts, bank deregulation, a weaker currency and credit expansion, a mix that undermines the dollar’s store-of-value role.

Such conditions encourage alternative-seeking behaviour, benefiting assets perceived as more stable over time.

Gold remains a clear beneficiary, but the Swiss franc also stands out, supported by Switzerland’s stable monetary and fiscal framework.

Notably low inflation has long been a feature of the Swiss economy, reinforcing confidence in the currency during periods of global uncertainty.

Switzerland’s central role in global gold refining and processing further cements the close relationship between the franc and precious metals, even as short-term corrections run their course.