There are people in Switzerland who resent that the country sold away much of its gold last decade. They may be a splinter group of Swiss politics, but they’re a persistent bunch.
And if they get their way in a referendum this month, these voters will make their presence known to gold traders around the world.
The proposal from the “Save Our Swiss Gold” proponents is simple: Force the central bank to build its bullion position up to at least 20 percent of total assets from 8 percent today. Holding 522 billion Swiss francs ($544 billion) of assets in its coffers, the Swiss National Bank would have to buy at least 1,500 tons of gold, costing about $56.3 billion at current prices, to get to the required threshold by 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. With polls showing voters split before the Nov. 30 referendum, the SNB and national government are warning that such a move could undermine efforts to prevent the franc from surging against the euro and erode the bank’s annual dividend distribution to regional governments.
“It would have a major impact if it passes,” said Joni Teves, an analyst at UBS AG in London. “If they do launch a buying program, it would have effectively a constant bid in the market.”
Repatriate Bullion
A “yes” victory means Switzerland would face buying the metal at prices that quadrupled since it began selling more than half its reserves in 2000. The move would make the SNB the world’s third-biggest holder of gold. The initiative would also force the central bank to repatriate the 30 percent of its gold held abroad in the U.K. and Canada and bar it from ever selling bullion again.
With 1,040 metric tons, Switzerland is already the seventh-largest holder of gold by country, International Monetary Fund data show. According to UBS, a change in the law may force the SNB to buy about 1,500 tons, while ABN Amro Group NV and Societe Generale SA estimate the need at closer to 1,800 tons.
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