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Switzerland Is Only Country That Would Vote For Bigger Gold Reserves - European Analyst

By Neils Christensen, of Kitco News
Friday October 17, 2014 9:00 AM

(Kitco News) - If there is one country in the world that would vote yes in a referendum to force its central bank to increase its gold reserves, it would be Switzerland, said one Liechtenstein fund manager.

Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the In Gold We Trust report, said that he is not surprised there is a campaign to increase the country’s gold reserves as the yellow metal has had a long tradition of being linked to the Swiss franc.

Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the In Gold We Trust report

“Switzerland used to have the highest gold reserves per-capita in the world up to about 10 years ago,” he said. “A lot of people still believe that gold is the foundation and the backbone of a strong currency.”

Stoeferle is in a unique position regarding the gold vote because Liechtenstein, which borders Switzerland, uses the Swiss franc as its currency. The vote, if passed, could have an impact on the country’s currency because it would impact the Swiss National Bank’s foreign reserves. Although Liechtenstein doesn’t get a say in the Swiss referendum Stoeferle has been following the initiative closely.

On Nov. 30, Swiss citizens will go to the polls to vote on three areas; 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.

With less than two months to go, Stoeferle explained that the Swiss gold referendum has now started to attract a lot of attention across the globe; however, he added that it is still too early to determine how popular the initiative is among the Swiss populace. He added that the campaign, started by the Swiss People’s party in April of 2013 after they collected more than 100,000 signatures to force the referendum, is expected to begin in earnest on Oct. 21.

Although it is still too soon to gauge the sentiment in the country, Stoeferle added that a lot of people aren’t happy that the central bank has expanded its balance sheet to weaken its currency and stimulate growth. Since 2011, the SNB has pegged the franc to the euro and maintains a floor of 1 euro to 1.20 francs.

“A lot of people believe that debasing the currency is not a sound economic policy,” said Stoeferle, “There is no evidence that a weak currency leads to long-term economic growth.”

The yes camp is up against some strong opposition as both the Swiss government and the national bank have urged people to vote down the gold initiative. Last week the Swiss government continued its campaign against the referendum as Eveline Widmer-Schlumpf, the country’s Finance Minster said at a press conference in Bern, that fixed gold reserves would impede the SNB’s monetary policy.

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Although there are some short-term benefits from a weaker currency like increased exports, Stoeferle said that he doesn’t believe those benefits outweigh the weaker purchasing power on imports. Instead, he added, the government should be implementing stronger economic policies and encourage companies to be more efficient to compete in the global marketplace.

“Perhaps a weaker currency makes good short-term gains but a central bank should not act like a hedge fund. I think they need to think in the long-term what is best for the country and the currency,” he said.

Whether the referendum passes or not, Stoeferle said the next few weeks will be an interesting time for the country as the population discusses the future of its central bank’s monetary policy. He is expecting the referendum to raise awareness of the country’s economy and currency.

“This initiative is the result of direct democracy, which is something the people are very proud of,” he said. “This referendum will impact the country’s economy and currency and I think the people will very quickly become interested in this discussion.”

Currently Switzerland holds about 1,040 metric tons of gold, which makes about 7.8% of its foreign reserves. Last week currency analysts at Nomura said if the referendum passes the country will have to triple its reserves during the next five years to meet its 20% commitment. They added that the SNB will have to purchase between $67 and $83 billion worth of gold.

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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