Understanding their interplay
Gold is to Switzerland, what wine is to the French. Most of the world's gold is refined in Switzerland and gold accounts for around 20% of Swiss exports. This close relationship to gold means that the CHF moves quite closely with gold. See the chart below.
The USD
The canny among you will also know that the USD has a strong influence on gold, so it is no surprise to see that USDCHF as a pair is very closely tied to gold. If the USD is strong, that weakens gold, and weakens the CHF. If the USD is weak, that strengthens gold, and the CHF. Here is an inverted chart of the USDCHF and spot gold to show that tight relationship.
Gold, and a CHF basket with greater USD weighting
So, when you add a CHF basket with a greater weighting of the USD you then can seee how closely this relationship between gold and the CHF is.
So, what's the point of all this?
This had been annoying me for ages. The CHF sometimes moves independently of the the JPY on risk off and risk on days. I couldn't figure out why until I was contacted on twitter by Peter who nudged me in the right direction. My colleague Arno then helped with a chat and the end result was a decent insight. So,by knowing CHF's relationship to gold you can choose whether to be pairing another currency with the JPY or the CHF. It will give you an edge. You will also spot why the CHF and the JPY are not moving in tandem if/when the risk tone dictates they ought to be.
