Hedge funds slash bullish wagers on gold over Trump election win
The precious metal has fallen about 8% from a record high on Oct. 31, with losses accelerating after Trump’s election victory last week.
Switzerland’s central bank (SNB) is stepping up efforts to block a populist motion launched last year that would force the financial institution to almost triple the proportion of reserves held in gold.
The Alpine country will vote on Nov. 30 on the so-called “Save our Swiss Gold” initiative organized by the right-wing People’s Party, or SVP. The motion calls for the central bank to hold at least 20% of its assets in gold, which currently make up about 7.5% of its total assets. In addition it should be prohibited from selling any gold in the future, and all of its reserves of the precious metal must be stored in Switzerland.
The Swiss Federal Council, the seven-member cabinet, as well as both houses of parliament have recommended voters reject the motion.
“The Swiss electorate will vote on an initiative which, paradoxically, would severely constrain the SNB’s room for maneuver in a future crisis,” SNB’s vice president Jean-Pierre Danthine said last week in a speech prepared for delivery at a conference in Martigny.
No way back
The proposed ban on future gold sales would have even more serious consequences for the SNB as an increase in gold holdings couldn’t be reversed, Danthine said.
“This would severely restrict our room for maneuver, and furthermore because gold pays no interest or dividends, the SNB’s ability to generate profits and distribute them to the government and cantons would be impaired.” he said.
It is not yet clear whether the gold restrictions measures for the SNB stand any real prospect of becoming law.
In other words, it would force the bank to buy gold every time its balance sheet expands and to sell euro every time it contracts.
Had the terms of the initiative been in force three years ago, it would have obliged the SNB to buy gold as well as euros in large quantities to defend the currency floor of 1.20 Swiss francs per euro, Danthine added.
The floor was imposed in September 2011 to prevent the Swiss economy tipping into recession and head off the danger of deflation. Since then, the SNB’s foreign currency holdings have ballooned – rising from about 204bn Swiss francs at the end of 2010 to 470bn Swiss francs last August. Despite the difficulty of managing such a rapid increase, the SNB says the minimum exchange rate is still “the key instrument to avoid an undesirable tightening of monetary conditions”.
According to FT.com, it is not yet clear whether the measures stand any real prospect of becoming law:
“Population growth and mass communication have made it easier to gather the 100,000 signatures needed to put initiatives to a public vote in Switzerland, but only 10 of 66 initiatives that have gone to referenda since 2000 have passed. Opinion polls will not appear until later this month, and have proved unreliable before previous votes.
“But Scotland’s independence referendum last month was a reminder of how rapidly political risks can come to the fore in currency markets.’
Currently, 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.
By Hpschaefer via WikiMedia Commons.
7 Comments
amadeusk331 .
This is the best thing that could happen for the Swiss people in terms of the viability of the Swiss state. A yes vote would ensure and reinforce Switzerland’s reputation as a financial hub and one of the world’s strongest and most trusted countries for investors to put their money….Gold is considered financial strength and the more a country has, the more sound it’s financial system is. The USA has sold off the majority of it’s 8000 tonnes (and now holds next to nothing) it once possessed and look at the state they are in. There is no need for Switzerland to be gragged down by Eurozone politicians out for themselves and the puppeteers like the Rothchilds who are behind the entire initiative to see gold is never saved except by them and on their terms
methods3110
Unfortunately the Swiss people have had their brains addled by their government and media, and still have trust in Keynsian policies and the lure of Socialism. There is no chance of this initiative being voted into law. The Swiss threw away half their gold at debased prices, and are now indistinguishable from other basket case European countries; whereas once, not so long ago, they had a strong economy based on conservative governance, and all that is now out the window.
methods3110
At least they didn’t store their remaining gold in the US. Phew!
esqualido
“This would severely restrict our room for maneuver, and furthermore because gold pays no interest…” (as if the SNB were paying savers any interest!). As for room to maneuver, when one has painted oneself into a corner(papered would be a better word) like, say Argentina or Venezuela), a little gold goes a very long way in getting out.
Pater Tenebrarum
Deflation is not a “danger”.
Pater Tenebrarum
You should read the papers put out by the SNB – yes, they definitely are a bunch of Keynesian dunderheads
Bob
The rats are running scared. Same scare and smear tactics as were used in the Scotland independence movement vote are being used here. Hopefully the Swiss show more backbone than the Scots, and don’t fall for the pathetic doom and gloom scenario painted by the criminal bankers and their paid liars.