By Peter Schiff
Euro Pacific Precious Metals

The markets are going through another sell-off phase, yet the traditional notions of a 'safe haven' are changing. No longer is the US dollar the default shelter; instead, gold, the Swiss franc, and the Japanese yen are the preferred assets.     

All three of these havens - gold, francs, and yen - have been surging upward this month. Two of them, however, are being actively devalued by central banks desperately (and foolishly) trying to curtail appreciation. The Swiss and Japanese are enlisting both policy measures and all the banker-speak they can muster to stem the tide of investment flows into their currencies.

The game is Last Haven Standing, and Spielberg has already acquired the movie rights.

SWITZERLAND: FROM NEUTRALITY TO INTERVENTION

Looking to Europe, the Financial Times now has the awkward task of reporting that mighty European Union's currency is coming apart at the seams, while neighboring Switzerland has barely enough hotels to house the world's waterlogged financial refugees. The franc is up 5.41% against the euro this year and almost 14% against the dollar. One wonders if the only way to prevent a collapse of the these major debtor currencies is to back them with Swiss-made wristwatches. At least then they'd have a partial gold standard and there'd be no excuse to be late for an austerity protest!

Unfortunately, the Swiss National Bank is so afraid of the franc's rise that it has flooded the market with liquidity and cut interest rates to zero. The SNB even recently threatened to peg the franc to the euro. It's as if survivors on one of the Titanic's lifeboats were so confused and bewildered that they began tying their boat to the sinking behemoth out of a desire for a 'stable relationship.'

NOTE TO JAPAN: IT'S NOT THE SPECULATORS

Japan, ironically, has been blessed that while its debt problems are severe, they've been severe for so long that markets are willing to take that as a sign of stability. And, aside from the public debt problem, Japan does have fairly impressive fundamentals. They are still a productive economy with high personal savings and exposure to booming China. So, it's no wonder the Yen has risen 6.63% against the dollar so far this year.

Former Finance Minister, and now Prime Minister, Yoshihiko Noda stated recently that he would "take bold actions if necessary and won't rule out any possible options" to restrain the yen's appreciation. Yet, while Noda has said the ministry will study whether "speculation" is behind the yen's rise, he doesn't seem to understand that this is a permanent move away from dollars and euros and into anything which might be a better alternative. This is not driven by Wall Street gamblers, but rather by everyday investors seeking shelter.

CLEARLY SHIFTING SENTIMENTS

My readers know that I see these past years in the US markets as one ongoing crisis. We're not "facing a double-dip recession" as the media suggests; instead, we're really in the midst of a prolonged economic depression. The periodic market panics since 2007, both in the US and Europe, all stem from the same disease and, as such, ought to be properly understood as related symptoms, not as separate events.

And as one long, ugly narrative, these subsequent panics resemble a series of steps; sharp drops leading down either to a dismal "new normal" or - more likely - a collapse in both the fiat dollar and euro currencies and a widespread return to gold as money.

My brother, Andrew Schiff, wrote an article for my brokerage firm this month reviewing the market turmoil and how it compares to previous crises since '07. He found a steady shift in what investors perceive as a safe haven.

During the depths of the credit crunch, from October 2008 to March 2009, the S&P lost over a quarter of its value, as investors flocked to the US dollar, driving it up 8%. Foreign stock markets sold off and most foreign currencies fell substantially. The Swiss franc fell over 3%. Gold rose some 6.5% and the yen rose 5.75%, but neither kept pace with the US dollar, which rose 13.5%.

Then, during the dip between April 23, 2010 and July 2, 2010, the S&P dropped again by almost 15%. The dollar rallied barely more than 3%. The Swiss franc gained slightly instead of falling. And this time, both the yen and gold beat the dollar, gaining 4% and 5.5% respectively.

Now here we are in August, and what's happening?

In extreme volatility, the S&P fell over 13% before rebounding to its starting place. The dollar has remained essentially flat even with intensified fears in the euro zone. The yen is also flat, despite heavy intervention to push it down. The Swiss franc rose 8% before Switzerland's central bank threatened to peg the currency to the euro, and gold has surged almost 12%!

See the pattern? On each step of this multi-year downward spiral, global investors are slowly but coherently altering their preferred safe haven. Alternatives are being desperately sought, though actions first by the Japanese central bank and more recently by the Swiss have prevented their currencies from fully realizing potential gains as dollar-alternatives.

Fortunately, gold doesn't have a central bank, so it can rise as fast as the dollar falls.