The Swiss National Bank could be forced to buy nearly $60 billion of gold at current spot prices after the first poll on the impending Swiss referendum shows a ‘yes’ vote could be on the cards.
On November 30, voters in Switzerland will decide whether or not to outlaw further gold sales from the Swiss National Bank, to make physical bullion at least 20 percent of the bank’s assets and whether to repatriate Swiss-owned gold.
A recent poll by popular online news site 20 Minuten shows the initiative’s supporters ahead 45 percent to 39 percent.
Should the country vote in favour of these proposals, the SNB will be forced to enter the physical bullion market to raise its gold holdings from around 7-8 percent at present, according to World Gold Council statistics.
The country has 1,040 tonnes of gold in its reserves, according to WGC figures, and would therefore need around to buy another 1,500 tonnes of metal to bring gold holdings to 20 percent of its assets.
At current spot gold prices of 1,239.70/1,240.40 per ounce, this equates to more than $60 billion.
“If the Swiss vote to boost gold reserves, as well as providing extra physical gold buying, it will also be a strong signal supporting the monetisation of gold – a move away from fiat money,” FastMarkets analyst William Adams said. “This may well encourage other countries to follow suit.”
“Let’s not forget that although confidence in the financial system may have been restored over the last year or so there is still a huge amount of sovereign debt and it remains far from clear how governments with deal with it. How they do may well become gold’s business,” he added.
Still, the ‘Save Our Swiss gold’ campaign may well flounder – the 26 Swiss Cantons or member states could theoretically dismiss the results of the referendum.
“Given that the SNB and the Federal government are actively opposed to the constitutional amendment, this may be an insurmountable barrier,” Barclays noted in a report.
There could be wider issues that impose a significant constraint on the SNB’s conduct of monetary policy, it added.
“The passage of the referendum would not remove SNB independence, but would alter its incentives to pursue balance-sheet related unconventional policy measures, hence undermining its credibility to purchase unlimited amounts of FX in defending its current primary policy tool, the EURCHF floor,” the bank said.
“It may increase the likelihood of the SNB following the ECB in introducing negative deposit rates. While gold markets have been most focused on the issue, the five-year phase-in would limit volatility, though passage of the initiative likely would raise the long-term equilibrium price for gold,” it added.
The Swiss People’s Party (SVP) launched the Swiss gold initiative in September 2011, with the target of achieving the 100,000 signatures in 18 months needed to advance the initiative to a federal referendum.
It gave several reasons for the programme: first, that following efforts from the ECB and the US Federal Reserve to devalue their respective currencies, the strength of the Swiss Franc had been weakened, forcing the Swiss to consider doing something similar.
The SVP also claims that Swiss gold is the property of the people, citing the SNB sell-off of 1,550 tonnes of the country’s original 2,590 tonnes of reserves in 2000 as a breach of that right.
Lastly, the SVP says that the SNB should reveal the locations of any Swiss gold reserves and repatriate any of the offshore metal, details of which have long been kept from public knowledge.
Swiss gross exports of gold surged to 172.6 tonnes in September, which is the highest monthly outflow since February. Of that total, exports to India were 58.8 tonnes, about twice the average monthly volume.
But gold imports into Switzerland were also higher at 194.6 tonnes, with inflow from the UK rising to 63.3 tonnes from 8.6 tonnes in August.
- See more at: http://www.bulliondesk.com/gold-news/focus-snb-could-need-to-buy-60-bln-gold-first-poll-shows-yes-vote-83907/#sthash.tlh9hszQ.dpuf
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