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Nomura Currency Analysts Think Swiss Gold Vote Unlikely To Pass

By Neils Christensen, of Kitco News
Friday October 10, 2014 11:58 AM

(Kitco News) - Although more attention is being focused on Switerland’s gold referendum on Nov. 30, currency analysts at Nomura said a “yes” vote could be difficult to achieve, according to the country’s voting statistics.

According to a research report published Tuesday by Nomura, referendums in Switzerland are fairly popular; however, very few are actually able to pass. Since 2000, the country has voted on 66 different initiatives, about 4.7 referendums per year, and only 15% have passed.

In the Nov. 30 referendum, Swiss citizens will be voting on three initiatives: whether or not the Swiss National Bank should increase its gold reserves to 20%, that the central bank should stop selling its precious metals and that all its gold should be held within the country.

The analysts said that their base case is for the “no” side to win, but they still looked at the implications in the off-chance that the “yes” vote one.

The analysts noted that a yes vote would force the SNB to purchase between $67 and $83 billion worth of gold and trip its current gold holdings at 1044.9 metric tons.

The analysts added that the immediate aftermath of a “yes” vote be “business as usually,” as the central bank would have two years to repatriate its gold reserves – currently 20% of its reserves are held at the Bank of England and 10% of its reserves are held at the Bank of Canada; the SNB would also have five years to boost its gold holdings to 20% of its total reserves.

However, in the long-term a yes vote would lead to the central bank increasing its balance sheet and depending on three scenarios, could lead to an appreciation of the Swiss franc.

In the mostly likely scenario, analysts said that the central bank will probably just buy more gold as this would have the least impact on the country’s currency. They added that the SNB would have to, on average, buy about 9.62% of the world’s gold production each year for the next five years.

The second scenario would be for the central bank to reduce its foreign exchange reserves and purchase a smaller amount of gold; however, this would lead to a stronger franc, which in turn could hurt the country’s economic growth.

The third scenario Nomura sees is for the SNB to reduce its foreign exchange reserves by 69% and not actually buy any gold; however, this is unlikely because it would lead to an extremely strong currency.

“What may seem like a simple decision to the Swiss electorate has in fact complicated consequences for policy makers at the SNB in respect to its holdings of gold and foreign exchange reserves,” they said.

Earlier in the week, Swiss Finance Minister Eveline Widmer-Schlumpf continued to urge voters to reject the referendum as it would impede the central bank’s monetary policy.

It is still too early to determine the sentiment within the country. Exit polls are expected to be released within the next few weeks, leading up to the vote.

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By Neils Christensen of Kitco News; nchristensen@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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