Financial eyes on Switzerland ahead of gold vote – ValueWalk Premium

Financial eyes on Switzerland ahead of gold vote

Financial eyes on Switzerland ahead of gold vote Clare O’Dea, SwissInfo

18.00.2014

Conspiracy theorists, bullion traders and central banks are all watching closely to see if Swiss voters will give a boost to gold, as a commodity and as a currency support, on November 30, in defiance of the Swiss political and financial establishment.

The vote that could see the Swiss National Bank (SNB) forced to increase its gold reserves has become a major talking point internationally, with comparisons being made to the Scottish vote for independence.

The proposal is being spearheaded by some leading members of the rightwing Swiss People’s Party who are staunch critics of the SNB which, they claim, is part of the “biggest swindle of our times” – printing money as a means of robbing citizens by stealth.

Meanwhile, the price of gold is going through an exceptionally volatile phase, having climbed to an all-time high of $1,900 an ounce in September 2011. It is now trading near a four-year low at around $1,204 (CHF1,154).

According to Bloomberg, Bank of America has predicted that a ‘yes’ vote could push gold above $1,350 an ounce, an increase of 18%, because the SNB would need to buy about 1,500 tons within five years to comply with the change in the constitution.

‘Healthy conversation’

In a Kitko News interview, former United States senator and presidential candidate, Ron Paul, who is a strong proponent of gold-backed currencies, said Switzerland was embarking on a “healthy conversation” regarding the role of its national bank.

“[The referendum] is one more step in the direction of proving that paper money, fiat money, money created by politicians out of thin air to subsidize big government and monetize debt is going to end.”

In a separate piece penned by Paul in DailyReckoning.com, the flagship site of contrarian investment analysis to which he is a regular contributor, he revealed the symbolic importance of the Swiss vote to its fans in the United States.

“Just like the US and the EU, Switzerland at the federal level is ruled by a group of elites who are more concerned with their own status, well-being, and international reputation than with the good of the country. The gold referendum, if it is successful, will be a slap in the face to those elites.”

‘Immediate threat’

Writing in Australia’s Business Spectator, financial commentator Miranda Maxwell also adopted an admiring tone, claiming that initiative “has at least as much to say about financial independence, democracy and economic security” as Scotland’s failed independence vote in September.

“If the Swiss manage to put a more solid foundation under their currency, the big question will be whether other nations follow suit,” she said.

The Financial Times has taken a more critical view of the “Save our Swiss Gold” initiative, sympathetic to the SNB’s position.

“For the central bank, the measures are not merely an anachronism: they pose an immediate threat.” The FT states that the new constitutional restrictions on gold would impair the bank’s ability to maintain the minimum exchange rate of CHF1.20 against the euro, set in September 2011.

The European Union is Switzerland’s biggest trading partner which makes the exchange rate ‘floor’ very important, according to Ursina Kubli of Sarasin Bank.

“It guarantees all exports to the eurozone have no currency risks at the moment. No movement means full certainty and that’s a big positive both ways,” she told swissinfo.ch.

Concern

Thomas Flury, UBS currency analyst, told swissinfo.ch that international investors were showing concern about the gold initiative.

“We see a lot of them asking: what is the impact on the Swiss franc? Will there be some kind of pressure on the Swiss National Bank? Do we need to fear something?”

Meanwhile Bloomberg View columnist Mark Gilbert strikes a note of caution in his assessment of the Swiss gold vote, pointing to metal’s volatility.

“While there’s something inherently attractive about a population having its say in how its assets are husbanded, the Swiss need to be mindful of the likely consequences of locking a fifth of their wealth away in bullion vault.”

In his first full interview on the issue on November 6 in the Neue Zürcher Zeitung, the head of the SNB, Thomas Jordan, said the combination of a set minimum gold reserve and a ban on selling the gold, as is called for by the gold initiative, would lead to problems for the central bank. Jordan said that it would be “fatal” for Switzerland to put restrictions on its own financial policy in this way, limiting its ability to react to changes in the markets and keep the country financially stable.

American dream

Aware that a return to a gold-backed currency or even the gold standard is a dream for some disillusioned Americans, one key Swiss campaigner for the gold initiative, Egon von Greyerz of Matterhorn Asset Management, has even been fundraising in English on his company website, which also happens to specialise in the buying and storage of physical gold and silver for private investors.

Von Greyerz did not respond to swissinfo.ch requests for an interview. In an interview with the French-language finance newspaper L’Agefi last month, von Greyerz showed the depth of mistrust the initiative supporters have towards the SNB.

“There hasn’t been a physical audit of the gold that the SNB treats as if it was its own property. It claims that the gold has not been leased to other parties for transactions and that the yellow metal is still on deposit. But the best way to show this is to bring back the reserves to Switzerland. If that doesn’t happen you could think that it has been used for other purposes or even that is does not exist.”

‘Save our Swiss Gold’

Started by three Swiss People’s Party politicians – parliamentarians Luzi Stamm and Lukas Reimann, and former parliamentarian Ulrich Schlüer – the initiative to “save Switzerland’s gold” was handed in to the Federal Chancellery in 2013.

The proposal has three elements: Firstly the Swiss National Bank would not be permitted to sell any more of its gold reserves. The SNB dramatically reduced its holdings of gold in the 2000s. Secondly, the SNB would have to increase its holdings of gold equal to at least 20% of its assets within five years. Thirdly this gold would have to be kept entirely in Switzerland, which would require the repatriation of Swiss gold reserves stored in the Bank of England and Canada.

Currently the entire reserves of the SNB come to about CHF500 billion. To meet the terms of the initiative, the central bank would therefore have to hold gold in the amount of at least CHF100 billion. Given its current gold reserves, it would have to buy CHF65 billion worth of ingots.

Comment (1)

  • geezer321

    Central bankers are robbing Swiss peoples as central bankers are doing in
    many countries.

    Gold and silver meets all the attributes for a sound medium of trade (money) which
    is why it has been used as a medium of exchange for centuries while paper
    currencies have been inflated away to nothing.

    Gold maintains its value, it cannot be counterfeited, it is divisible (its
    density means small amounts can function as large monetary denominations), it
    is durable, it is easily transportable, it has valued utility in art and
    jewelry, and its rarity requiring substantial effort and investment to obtain
    gives it recognized integral value.

    Gold’s value made it dangerous to carry around and created a need to secure it,
    as with any other valuable, but still retain its utility as a medium of
    exchange without actually needing physical gold. Gold smiths offered a
    solution. For a fee they would store gold and issue a certificate that would be
    redeemable for the amount of gold put on deposit. With the gold secure in the
    gold smith’s safe the certificates themselves became tradable.

    With gold assets sitting in their vaults came an opportunity for corruption. It
    was an opportunity for the gold smiths-cum-bankers to utilize the depositor’s
    gold as security for certificates a banker would print to loan for interest for
    which there had been no gold deposits. It was possible for bankers to do this
    because gold certificates would remain out in circulation and not everyone at
    once would ask to redeem certificates.

    The crux of the corruption is bankers put the gold on deposit at risk. The
    contract was for the banker to keep the gold safe. They violated their contract
    with the public to provide security of assets.

    Gold on deposit, in reserve, was backing not just one certificate but multiple
    certificates. The temptation to print as many certificates as possible and have
    as many indebted people paying interest to a bank was enticing to say the least
    and lead to runs on many banks when it became known there was insufficient gold
    to redeem certificates.

    This is the origin of corrupt reserve banking that has morphed into a global
    crisis where bank notes are no longer backed by gold freeing bankers from a
    discipline gold imposes. Globally central banker printing of paper notes is
    skyrocketing out of control.

    Untied States President Richard Nixon reneged on redeeming U.S. Federal Reserve
    notes for gold in 1971 to stop the drain on U.S. gold reserves. U.S. gold
    reserves had dropped from over 20 thousand tons to over 8 thousand tons. There
    was a run on U.S. gold. Confidence in the United States dollar was declining
    with excessive printing and government deficits. Since 1950 the U.S. dollar has
    lost 90% of its purchasing value.

    Central bank notes are now backed by the strength of an economy behind them.
    With economies competing on a global scale currency war has broken out to
    debase currencies for competitive advantage. In short, countries are printing
    paper notes to leverage whole economies in a race to debase in the same way
    bankers issued more notes then what they had in gold backing.

    The bankers were leveraging the gold and silver to create more debt instruments
    upon which they made interest. Bank leveraging allowed the bankers to print a
    large portion of their notes out of thin air without backing. In a run on a
    bank where people lost confidence in bank notes, if the first 10 percent let us
    say redeemed their notes for gold there would be no gold left for the 90% who
    came later. The 90% would be left holding worthless paper.

    There have been many historical examples of this happening. Germany being one
    of the more famous examples in recent history.

    The world is becoming financialized. Central banks are printing piles of paper
    money far beyond what is required for normal economic operations. As a result
    backing for all these paper debt instruments is declining. This is what real
    inflation is. It is the piling on of debt. All these central bank notes (Swiss
    Franks, USD, Pound, Euro, Yen, etc.) are nothing more than insufficiently
    secured I.O.U.s. Financial systems are becoming ever more fragile and heading
    for a crash as real tangible economic assets backing currencies are becoming
    ever smaller in reserve at a time when the world real resources are being maxed
    out making it unlikely economies will be able to grow their way out of mounting
    debt loads.

    Debt is not a way to grow an economy. Economies are grown from savings and
    investment in production and innovation.

    Financial leverage is increasing and dominating over substantive economic
    activities. In short, central banks are leveraging global economies the same
    way fractional banking originally started by leveraging gold.

    For the Swiss, the Swiss National Bank is putting the Swiss economy at risk as
    they leverage it ever more. This is the real risk for Switzerland that the
    Swiss National Bank and the Swiss government is not revealing to its citizens.
    They are not revealing this because they ignore the dangers of over leveraging
    the Swiss economy to maintain elites growing financial assets. They are
    Keynesian monetarist believing spending is the path to growth and prosperity.

    November 18, 2014 at 11:07 pm

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