Swiss voters are gearing up to vote on the country’s gold referendum tomorrow (November 30), which could have significant ramifications across the world’s precious metal markets.
A ‘yes’ vote would require the nation to retain at least 20 per cent of its balance sheet in gold bullion at all times. But what does this actually mean for Switzerland and other countries worldwide?
The Perth Mint has highlighted five potential impacts of the referendum passing, which requires at least 50 per cent of the vote.
1. From seller to buyer
Switzerland currently only possesses 7.7 per cent of its assets in gold bullion. Therefore, the country would need to go from being one of the biggest sellers of the commodity in recent years to buying large quantities in order to reach 20 per cent status.
Once it does, the Swiss would break into the top three nations in terms of gold reserves, with 2,540 tonnes. Only Germany (3,384 tonnes) and the US (8,133 tonnes) would have more gold in their bullion vaults.
2. De-facto gold standard
Switzerland was one of the last countries to move away from the gold standard, with the Swiss franc pegged to the yellow metal until 2000. Currently, the currency is linked to the euro, but a ‘yes’ vote would return the nation to a de-facto gold standard.
“This would be a new precedent for central banks to deal with,” the Perth Mint stated.
3. Gold rush
To meet a 20 per cent limit, Switzerland would need to purchase approximately 1,500 tonnes of gold. This is roughly half the world’s total annual production.
There is currently 522 billion Swiss francs’ worth of assets in the country, so the central bank would need to buy more than $56 billion of gold bullion before 2019.
Furthermore, Bank of America’s Michael Widmer believes a ‘yes’ vote in the referendum could see the price of gold rocket as much as 18 per cent.
The Swiss referendum will also require the country to repatriate all of its gold held abroad, which currently accounts for approximately 30 per cent of the nation’s total reserves. Canada has 10 per cent of Swiss gold, while the UK has the remaining 20 per cent. However, not all attempts at repatriation are successful.
In 2012, Germany tried to repatriate $141 billion worth of bullion back from the US Federal Reserve Bank. Deutsche Bank was told the process would take seven years and Germany only received five tonnes in 2013.
5. No more gold selling
As part of the new regulations for gold, a ‘yes’ vote would mean Switzerland is forbidden from selling any of its yellow metal assets.
The country’s central bank has complained that this would require them to purchase bullion whenever they extend the balance sheet, but would prevent them from offloading any excess should the situation reverse.
Commenting on a potential ‘yes’ vote, Swiss National Bank Vice-President Jean-Pierre Danthine said it “would severely restrict our room to manoeuvre”.