Swiss yes vote won't really boost gold price

Gold was trading sideways on Monday after last week's recovery from four-and-half-year lows, but traders hoping for a stronger showing following a Swiss referendum on gold may be disappointed.

The Swiss go to the polls on November 30 in a referendum that will lay down new rules for the country's central bank concerning its gold reserves.

Surveys are divided about support for the "Save Our Gold" camp that would force the Swiss National Bank to hold 20% of its reserves in gold, repatriate bullion held outside its borders and halt all sales, and not everyone even agrees that a yes vote would lift gold prices.

To meet the 20% requirement the SNB will have to buy between 1,500 – 1,800 tonnes on the open market over five years and some analysts have suggest the price of gold could gain 18% under such a program as the SNB "would have effectively a constant bid in the market."

But a new research note by Deutsche Bank points out these purchases would amount to 1.2 tonnes per day which is a "small fraction" of daily turnover reports The Economic Times:

Some may also be carried out via private transactions with other central banks, minimising market disruption, it added.

"Another option for the SNB would be using gold swaps to 'window dress' its balance sheet rather than holding physical gold or futures contracts," it said.

The SNB could borrow gold from counterparties prior to monthly balance sheet reporting dates, re-exchanging it for currency the next day, it said.

Meanwhile Reuters reports SNB chairman Thomas Jordan has ruled out setting up a sovereign wealth fund to manage the country's gold purchases because such a move – which some currency dealers have speculated about – was "unthinkable".

"The SNB cannot simply use some tricks to circumvent the will of the people. I rule that out categorically," he told weekly paper Sonntagszeitung.

Jordan also renewed the SNB's criticism of the proposal, which he said would fuel unemployment, increase the risk of recession and threaten the bank's efforts to keep the Swiss franc capped against the euro.

At the moment, the bank has 1,040 tons of gold, with roughly 70% stored in Switzerland, 20% at the Bank of England and 10% at the Canadian central bank.

If the SNB starts buying Switzerland, it would be placed third on the list of official gold reserves by country behind the US and Germany.

Switzerland produces no gold itself but it's the world's gold refining hub, a major global center for bullion vaults and boasts the world's 8th largest official hoard of gold.

The country was also late coming off the gold standard and as recently as 1999 its constitution required the franc to be 40% backed by gold.

Emmenthaler image by Hellebardius