On the 30th November 2014 Switzerland will vote in a referendum:

  • To prevent the Swiss National Bank (SNB) from selling Gold
  • Force the SNB to maintain 20% of its foreign reserves in Gold (It would be immediately unable to sell Gold but would have 5 years to get to the 20% requirement)
  • If the referendum is successful for its proponents, then over the next 5 years the SNB would need to sell part of its currency reserves to finance the gold purchases. Or, it could also, simply print the money … theoretically at least
  • Currently this amounts to selling the equivalent of USD68bn (give or take) (the SNB would be selling mainly EUR and USD) to buy 1,783 tons of Gold

As an alternative, the SNB could keep the tranche of foreign reserves needed for liquidity management while splitting off the rest in a Sovereign Wealth Fund nominally under the control of the ministry of finance. This would leave the SWF outside the definition of foreign reserves in the referendum. But they still gotta buy gold.

gold vaults

Empty the gold vaults

The latest poll gives 44% support for the initiative … the pollsters say support is likely to diminish as November 30 approaches, though. Hmm, we’ll see.

The gold initiative is opposed by the Swiss government and the SNB (and other parties) – (I posted on SNB opposition to the referendum here)

Implications for the gold & FX market:

  • The rule would be the equivalent of giving a put to the market
  • Each time the price of gold fell, the SNB would automatically buy gold so that the reserves maintain a 20% ratio and this by selling presumably mostly EUR and USD
  • While FX implications as we approach the referendum date are not huge (given the time the SNB would have to implement the new rules), it is conceivable that in the short-term, EUR/CHF short term volatility should get a mild bid as investors could use the poll as an excuse to challenge the EUR/CHF floor – with the market then perhaps starting to speculate on an SNB rate cut to negative interest rates, especially as short term rates are lower in the Eurozone than in Switzerland. The SNB next meets after November 30 on December 11, this woud thus seem to be the earliest opportunity for SNB action should the poll succeed.

-via SocGen and other sources