Gold Tumbles After Swiss Voters Reject Gold Referendum, Oil and Silver Slump to 5-Year Low

Due to confidence that Swiss gold is as safe abroad as it is at home, Swiss population intensely rejected a referendum to force the Swiss National Bank to hold 20% of its reserves in gold.

Photo: Alex Kotelnikov/Flickr

Photo: Alex Kotelnikov/Flickr

According to Swiss national broadcaster SRF (Schweizer Radio und Fernsehen), in recent Swiss gold referendum, about 78% voted against expanding central bank gold reserves to 20% of central bank assets from the current 7%.

The vote is an impact to “Save Our Swiss Gold” movement that had the hopes of moving Switzerland back toward a gold standard which the country left in 1999. Since that time, there has been no requirement for the country’s currency to be backed by gold, therefore central bank gold reserves have remarkably weakened.

Before the referendum, Thomas Jordan, Swiss National Bank (SNB) president, commented that the popular vote on requiring the central bank to keep 20% of its assets in gold would hold up the central bank’s ability to conduct monetary policy.

“The initiative is both unnecessary and dangerous”, said Jordan according to the statement obtained by the Wall Street Journal, later he added that “It is unnecessary because, under the current monetary order, there is no link between price stability and the share of gold in the SNB balance sheet.”

Besides, Jordan noted that Switzerland’s stock of gold is high compared with other central banks and that the SNB does not have further plans to sell or purchase gold in the future.

The representatives of the Swiss People’s Party, who were the organizers of the initiative, said that the gold reserve measures were necessary because the SNB’s policy of exceeding the value of the franc has left its balance sheet with a surplus of euros which have been devalued in the wake of the financial crisis. Furthermore, they have been expressive against the devaluation of the Swiss franc, with the intention of helping Swiss exporters and the Swiss economy.

At the time the SNB has a foreign exchange floor binding the Swiss franc to the euro and has been buying euro in the hope of suppressing the value of the franc and alleviating the pressures on Swiss exporters. The Swiss franc is seen historically as a safe currency in Europe and formerly had a tendency to appreciate steeply in market turmoil before the exchange rate limit was announced.

There has been increasing pressure on the Swiss National Bank to cut interest rates below zero to keep the Swiss franc below its exchange rate floor. The European Central Bank (ECB) cut its deposit rate below zero in June and has started joining into long-term asset purchases. This has waned the euro against other major currencies, including against the franc, with the euro trading just above the limit set by the Swiss National Bank.

While price stability and the share of gold in a European central bank’s balance sheet may seem to only have a shaky interaction at this point, as the ECB suffers more obstacles, more gold initiatives will arise, and not just in Switzerland. There is no doubt that eventually, central banks will consider holding a Bitcoin reserve.

Looking back, Citigroup Inc. considered the initiative be pointless. While comparing Gold and Bitcoin, Willem Buiter, Chief Economist at Citigroup Inc., stated that gold implies high costs on production and storage.

In return, David Andolfatto from WallStreetPit noted: “Bitcoin production requires zero cost. If one had control over the protocol, one could instantly and costlessly create as many bitcoins as one wanted. No environmental waste, no effort needed. The same is not true of gold.” Taking this into account, it’s high time to invest in Bitcoins.

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