“Save Our Swiss Gold” is the slogan of the promoters of the referendum on which Swiss citizens will discuss on Sunday. It is therefore not a matter of saving souls, as the SOS invokes, but of gold. Conservatives of the Centro Democratic Union argue that foreign exchange reserves, especially the euro component, are much less secure than the precious metal. And in the name of the country's independence and its choices, they also want the return to their vaults of those Swiss gold reserves still kept in Canada and Great Britain. The vote will have to decide whether to force the Swiss National Bank (SNB) to purchase enough gold within five years to build gold stocks equal to 20% of total foreign exchange reserves. With the commitment not to alienate even a gram. The success of this line, which is called the Gold Initiative, will only be decreed if it receives the assent of both the majority of voters and the majority of the cantons.
Today, Swiss foreign exchange reserves amount to 1040,1 tons and are surpassed only by those of the USA (8133,5 tons), Germany (3384,2), the International Monetary Fund (2814), Italy (2451,8), France (2435,4), Russia (1185) and China (1054,1). In the ranking of the quantity of gold per capita, Switzerland leaps to first place, while as a share of total foreign exchange reserves the percentage for Bern is just under 8%, against 72% in the USA, 68% in Germany, 67 % in Italy, 65% in France, 10% in Russia and just over 1% in China.
Bringing this 8% up to 20% means buying 1600 to 1730 tons of gold in five years, an amount that is equivalent to more than half of the world's annual mining production. It also means disavowing the strategy of the recent past: in 1997 the Swiss gold reserves amounted to 2590 tons, but in 99 the end of parity between gold and the Swiss franc was ratified and the sale of a large quantity of metal was also decided (1550 tons were in fact decommissioned between 97 and 2005) with the excuse of creating a solidarity fund that would compensate the victims of crimes against humanity. The destination however, more prosaically, was changed in favor of the finances of the cantons.
The desire to go back to gold, as has been said, reflects the fear that all the euros that were bought by the Central Bank will continue to devalue in order to curb the strengthening of the Swiss franc. In 2012 alone, the country's foreign currency reserves jumped from 257 to 432 billion francs, largely denominated in euros, however, and therefore subject to substantial decreases in recent months.
Thomas Jordan, president of the SNB, is absolutely against the initiative, which would require him to hold a large quantity of gold without the possibility of moving, lending or selling it. With the added risk of paying it gradually more and more expensive, thanks to the support that the purchases could give to the international market of precious metals. His opinion influenced the polls conducted among voters: the latest projections gave the yes to 38%, the no to 47% and the undecided to 15%. The yes is considered successful especially in the Canton of Ticino. Meanwhile, the supporters of the referendum are trying to get those who are still uncertain to their side. However, the opinion expressed by Citigroup, according to which gold should not be attributed a real intrinsic value, will not help them. It's like buying bitcoins, they say, and it would be better to invest in a basket of ETFs linked to different commodities.
In the meantime, the market demonstrates investors' caution: on November 5, gold had fallen to a four-year low of 1142 dollars per ounce, at the London fixing, and recovered around 1200 dollars, a range it has maintained in the last eight sessions, but it remains a long way from both the 1385 dollars of mid-March and even more from the historical record above 1921 dollars, established in September 2011.
The bond between investors and the precious metal is essentially an emotional one. Prices today are in line with those at the end of 2013 and compared to 31 December 2012 they have fallen (in dollars) by 28%. A fall that made us forget, with a clean sweep, that in the previous twelve years gold had always appreciated: in fact, the last fixing in 2000 was stopped at 272,65 dollars. Or maybe the recent meltdowns have just raised fears of a return to the very low values of the end of the millennium.
The impact of a vote in favor of the purchases remains to be seen. Gold, according to some analysts, could go back up to 1350 dollars. But it is said that physical transactions are not sufficient to counter the competition of financial instruments and shares. There is also a strong link between gold and oil, which should not be underestimated. A calculation by Société Générale says that with Brent at 70 dollars a barrel we can expect a further stop to inflation and a consequent drop of around 5% for gold prices. Situation that is becoming very likely, in the light of the OPEC meeting in Vienna. However, the declines should subsequently be curbed by the fact that the break-even of many gold mines is already dangerously close.
Another uncharted terrain concerns the Swiss franc and the SNB: selling francs to buy gold should, in theory, curb the upward run of the Bern currency, but risks having the opposite effect, in the medium term, also because the SNB could use the opportunity to reduce the presence of euro-denominated securities in its reserves. Nor can we forget that Russia, afflicted by a serious weakness of the ruble, has recently intensified its purchases of gold precisely to give support to its currency.
President Jordan, who heads the Swiss central bank, said that the purchase program might not weaken the currency, but it would certainly weaken the SNB and make its goals more difficult, in particular those of keeping inflation at 2% and curb the euro/Swiss franc ratio so that it remains around 1,2. It should be noted that if gold were to drop, despite Bern's purchases, the SNB would risk a greater loss than it could accuse the single currency.
