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A Brief Note on Swiss Gold Referendum

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In a national referendum planned for later this month, Swiss voters will be deciding whether or not the country’s central bank should begin buying more gold.

Switzerland already owns some 1040 tons (about 33 million ounces), placing it in the top ten holders of central bank gold reserves behind the United States (with 8,133.5 tons), Germany (with 3,387.1 tons), the IMF (with 2,814 tons), Italy (2,451.8 tons), France (2,435.4 tons), China (with undisclosed holdings), and Russia (with over 1,100 tons).

The so-called “Save Our Swiss Gold” proposal, if supported by more than 50 percent of those voting, would prohibit the Swiss National Bank (the SNB) from selling any of its current gold reserves.  But, more importantly, it would require the SNB to hold at least 20 percent of its official reserve asset in the form of gold.  Currently, gold accounts for only 7.8 percent of the central bank’s total official reserves.

By our reckoning, a “yes” vote would require SNB gold purchases on the order of 1,500 tons (48 million ounces), most likely spread out over five years – that’s about 300 tons a year, an amount that could be fulfilled by the world gold market without any difficulty but would nevertheless provide considerable support to the price.

The right-wing Swiss People’s Party has been the driving force in support of the referendum, claiming it would “secure a stable Swiss franc.”  Meanwhile, the SNB and Swiss Finance Ministry have been vocal opponents of the referendum, arguing that a “yes” vote would be detrimental to economic growth, raising unemployment and risking recession.

Recent polls suggest the November 20th referendum does not have sufficient popular support – and, therefore, the markets are not expecting any change in the Swiss central bank’s gold policies or lasting impact on the metal’s price.

However, major bullion dealers and a number of leading analysts are of a mixed mind.  A “no” vote against raising Swiss gold reserves would likely have no lasting influence on the metal’s price . . . but a surprise “yes” vote would likely prompt a short-term rally followed by a higher long-term average gold price.