Swiss Gold Referendum Could Stabilize Gold Despite Opposition

Blame gold’s free fall on the Fed, but if a long-shot referendum passes it could be the Swiss National Bank that stops it.

Gold has been dropping as the dollar has been strengthening on better U.S. data and also as the Fed gets closer to the day it will start raising interest rates.

As the precious metal continues to look for a floor, traders are eyeing a Swiss referendum Nov. 30 that could require that country’s central bank to hold 20 percent of its foreign exchange reserves in gold. So far, polls show only about 2 in 5 Swiss voters would cast their votes in favor of it, strategists say.

According to Jim Steel, head of commodities strategy at HSBC, the SNB currently holds about 7.8 percent of its reserves in gold and that would require massive purchases. So far it seems unlikely to pass, but if sentiment changes and it looks like it would be approved, gold could quickly gain $50.

“The polls so far indicate it will not pass,” he said. “The market has given the impression that it does not believe it would pass.” The referendum was proposed by the ultraconservative Swiss People’s Party.

Bart Melek, head of commodities strategy at TD Securities, calculated that if the referendum did pass the SNB would have to buy about 1,800 tons of new gold—or 350 tons a year over the next five years to make up 20 percent of the $541 billion reserves.

“It could certainly act as a stabilizing factor,” he said, but added it’s unlikely to become law. “There’s a pretty large impediment to that becoming legislation. You’ve got the government against it, the Swiss National Bank against it.”

via CNBC

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza