Guest Editorial: The Swiss government begins its fight back versus the gold referendum

The Swiss government begins its fight back versus the gold referendum In a recent article we at Bullion Capital commented on the remarkable referendum the Swiss are conducting on November 30th. For those in our community not aware of the referendum details and the potential monumental ramifications, here’s a quick synopsis…

The ‘gold’ referendum on November 30th is uncomplicated, on the ballot is a single measure, divided into three constituent parts and a yes or no question. The motion that will be put before the Swiss parliament is to prohibit the Swiss National Bank (SNB) from any further gold sales, an order to repatriate any Swiss-owned gold held in foreign vaults back to Switzerland and a future guarantee that gold will make up at least 20 percent of the SNB’s assets. Overall this referendum is an attempt by a political party in Switzerland to bring more oversight and accountability to Switzerland’s central bank.

We also ‘warned’ in the article that it wouldn’t take long for TPTB (the powers that be) in Switzerland to begin a propaganda campaign versus the “yes” campaign and we weren’t wrong.

The SNB (Swiss National Bank) have come out all guns blazing with a negative campaign versus the vote over recent days. The “Save our Swiss Gold” initiative was launched by members of the Swiss People’s Party and they’re attempting to tap into public opinion which is unsettled by the economic struggles of its immediate neighbours. Predictably the Swiss government has rejected the idea, saying last year that “gold no longer has any meaning for monetary policy”.

For the central bank, the measures pose an immediate threat. Since September 2011, when it promised to buy as much foreign currency as needed to stop the Swiss franc strengthening past SFr1.20 to the euro, the SNB’s foreign currency holdings have ballooned, rising from approx.

SFr204bn at the end of 2010 to SFr470bn in August. The SNB says the minimum exchange rate is still “the key instrument to avoid an undesirable tightening of monetary conditions”. The gold initiative could blow a hole in this policy.

A proposal that the SNB should hold a fifth of its assets in gold and be prohibited from selling the precious metal in the future would severely restrict its ability to conduct monetary policy, according to the Vice President, Jean-Pierre Danthine.

If the referendum is passed, it would result in: the repatriation of Swiss gold reserves, an increase in gold holdings of the SNB to reflect an allocation of 20% of total reserves (today gold accounts for 7.7% of total reserves) and a moratorium on the sale of Swiss gold reserves The SNB are opposing the repatriation issue on the grounds that in a national emergency foreign holdings could be sold quickly, whereas domestic holdings may be tied up. However, many international buyers, including the People’s Bank of China would be willing buyers of the Swiss gold reserves in Switzerland and then repatriate or take delivery to their own country.

Many Swiss are alarmed at Germany’s experience, when Germany attempted to have their sovereign gold repatriated from the U.S. Of the 300 tonnes requested it has received a mere 5 tonnes. Could this be the real political issue that the Swiss authorities are critically embarrassed over, there is no Swiss gold holdings being held overseas?

This is a guest editorial written and representing the corporate perspective of Bullion Capital

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