Switzerland to Hold Referendum on Gold Reserve Policy

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Source: Fox Business – Switzerland to Hold Referendum on Gold Reserve Policy

Notable excerpts:

The initiative from the Swiss Peoples Party, or SVP, to prevent the Swiss National Bank from selling any of its gold reserves and force it to hold at least 20% of its assets in the precious metal, has now gathered the required 100,000 signatures necessary for a national referendum, the government said Thursday.

The issue of gold sales by the SNB has been a controversial one, and follows the disposal of some of its gold reserves between 2000 and 2008, as part of an agreement among global central banks to reduce their holdings of gold.

The SNB currently has gold reserves of 1,040 tons, which have remained unchanged since 2008, which at the end of 2012 were valued at just over 50 billion Swiss francs ($53.76 billion), and represent around 10% of its total assets.

The SNB’s holdings of gold reached 2,590 tons by the end of the 1990s, making it then the world’s fifth-largest holder of gold, according to SNB data. Switzerland is currently the world’s seventh largest official sector holder of gold.

The value of its current reserves have contributed significantly to the SNB’s annual earnings, particularly given the metal’s gains in the face of the ongoing euro-zone debt crisis.

The SNB’s Zurich-based spokeswoman Silvia Oppliger said the central bank has taken note of the ratification of the initiative, and “we have considerable concerns with regard to the monetary policy implications of the demands in the initiative.”

“We shall respond to the demands of the initiative in due course,” the SNB said Friday. Economists confirmed the SNB is likely to have reservations about the effect of the initiative on its ability to conduct monetary policy, economists said.

“It’s not the ban on the sales of gold that is problematic, but rather the requirement to hold 20% of its assets in the metal,” said Alessandro Bee, an economist at Bank Sarasin & Cie in Zurich.

The SNB’s balance sheet has already been swollen by its purchases of euros to check the franc’s appreciation versus the common currency, and since September 2011, to defend the floor of CHF1.20 per euro.

“The 20% requirement would force the SNB to expand its balance sheet further, and this would make its conduct of monetary even more difficult,” Mr. Bee said.

Still, the legislative procedure means it will be several years before the initiative comes up for a popular vote, and a Swiss government spokesman said it could take 42 months from the time of the initiative’s submission in March 2013 before the issue can be voted on.

“This has a long way to go yet, and may not be passed when the referendum does happen,” noted Macquarie Bank precious metals analyst Matthew Turner.

If it did, it would be incredibly bullish, a rocket for gold prices as we are talking about huge purchases that would have to be made. But the Swiss National Bank will not want its reserves policy to be determined by referenda and this proposal will be countered,” he added.

The news comes one week after reports that Cyprus could sell 10 tons of its central bank gold reserves to help fund its bailout. While the amount is not big enough to have a material impact of the balance of the global gold market, the news contributed to gold’s record-breaking tumble to two-year lows this week.

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