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Switzerland is set to vote on whether to substantially boost its gold reserves at the end of the month. Investors and analysts are waiting with bated breath to see if the next gold run is around the corner. Take our survey to tell us what you think the outcome of the vote will be.
On November 30, Switzerland will head to the polls to vote on whether the Swiss National Bank should be forced to rebuild its stockpiles of gold. Analysts believe a “yes” vote could provide support for the currently shaky gold price.
The proposal comes from “Save Our Swiss Gold,” a group that would like to see the central bank build up its gold position to at least 20 percent — from a current 8 percent — of total assets.
With gold closing Friday at $1,177.81 per ounce and down 13.32 percent for the year, a victory for the “yes” side could cause prices to skyrocket.
The push for “yes”
The movement has found traction within the conservative Swiss People’s Party, with current Swiss Federal Assembly members Lukas Reimann and Luzi Stamm turning out for the “yes” side.
They’re intrigued by the fact that if the proposal goes through, the tiny country will rise to third place in global gold holdings. Switzerland currently holds just over 1,000 tons of gold, making it the seventh-largest holder of gold in the world.
However, it will take a lot of work to get there. If the initiative is passed, the bank will have to buy up to 1,800 tons of new gold at prices that have quadrupled since 2000. It will also have to repatriate about 30 percent of the gold it has sold, which is currently held abroad in the United Kingdom and Canada. Finally, the bank will be forbidden from selling gold ever again.
That said, the impact for investors could be huge. In an interview with Bloomberg, Joni Teeves, an analyst with UBS (NYSE:UBS), said a “yes” vote could create waves in the current marketplace.
“It would have a major impact if it passes. If they do launch a buying program, it would have effectively a constant bid in the market,” said Teeves.
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Despite the flurry of interest from investors, the proposal hasn’t found much traction within the halls of the Swiss parliament.
According to CNBC, only about two in five Swiss voters are in favor of the motion.
“The polls so far indicate it will not pass,” said Jim Steel, head of commodities strategy at HSBC. “The market has given the impression that it does not believe it would pass.”
In an interview with the Neue Zurcher Zeitung last Thursday, Thomas Jordan, the Swiss National Bank’s president, said the initiative would make it difficult for the bank to maintain a cap of 1.2 Swiss francs to the euro.
“The initiative is not in the interest of Switzerland,” Jordan said. He added that it would be “disastrous” to restrict the central bank’s ability to “respond to disturbances and maintain monetary stability.”
What are the odds?
Hypothetically, if the “yes” side is victorious, what sort of impact will the market face? As previously mentioned, Switzerland will have to substantially increase its gold holdings and prices will reasonably skyrocket, correct? Not necessarily so, say analysts.
If the motion goes through, analysts believe it could buoy prices up to $1,350 an ounce, roughly 18 percent higher than current prices.
Michael Widmer with the Bank of America said he sees a “yes” vote creating firm support at $1,200 per ounce.
Other analysts have emphasized the likelihood of price increases, but not to the extent investors have imagined.
“If Switzerland buys $60 billion worth of gold over a period of 5 years … it is going to have a measurable impact on the price of gold. Will it go catapulting to new highs? Probably no,” said Jared Dillian, a former Lehman Brothers Holdings ETF trader.
What do you think? Take the survey below to let us know.
Securities Disclosure: I, Nick Wells, hold no direct or indirect investment in any of the companies mentioned in this article.
