The Swiss Gold Initiative & The Implications For The Gold Price

Switzerland’s central bank is warning of unstable price signals were the country to vote to require the bank to keep a minimum amount of gold in its vaults

The Swiss Initiative, “Save Our Swiss Gold” would be a  “fatal error of judgment,” Thomas Jordan, president of the Swiss National Bank .

The Swiss will vote November 30 to make the Swiss National Bank hold a fifth of its assets in gold, a level it needs to meet within five years. The SNB currently has assets of about $550 billion.

The campaign is led by members of the right-wing Swiss People’s Party, which would prohibit the bank from selling any of its gold in the future and repatriate overseas gold.

The vote is currently too close to call with 44% of respondents in favor of such an initiative, 39% against and 17% undecided. A majority of voters need to approve the initiative.

“Too little gold in the economic crisis was never the problem, the strong franc was the problem,” Mr. Jordan said. “We had a massive overvaluation which has led to major problems.”

“We must be able to dampen this problem, but our ability to do this would be severely restricted,” he said.

The initiative forces the SNB to buy gold every time it buys euros, which it does to curb the rise of its currency, the Swiss franc.

“Therefore the minimum rate remains the main instrument to keep prices stable and stop deflation,” said Mr. Jordan, who said no move away from the minimum exchange rate was planned in the “foreseeable future.”

If the Swiss vote YES,  the “Save Our Swiss Gold” will force the country to buy between 1,500 to 1,800 tons of gold bullion to its holding by the year 2019.

“Those purchases, equal to about 7 percent of annual global demand, would trigger an 18 percent rally, giving a lift to gold bulls who’ve suffered 32 percent losses in the past two years, Bank of America Corp. estimates,” Bloomberg writes.