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Analysts: Support For Swiss Gold Referendum Appears To Be Declining

By Allen Sykora of Kitco News
Monday November 03, 2014 12:41 PM

Editor's Note:Updating earlier story to include comments from Bank of America Merrill Lynch.

(Kitco News) - Swiss support for a gold referendum appears to be falling, based on the most recent poll, analysts said.

At the end of last week, a poll released by the Swiss newspaper 20 Minuten showed that 38% of the respondents were in favor of the “Save Our Gold” referendum. Forty-seven were opposed, while 15% were undecided.

The poll had 12,491 respondents and was conducted Oct. 27. The percentage in favor of the referendum fell from 45% in the previous poll.

The measure has fared better in another poll by Berne-based research and polling institute gfs.bern, which showed the gold initiative had the support of 44% of the Swiss public. Most news organizations said this poll is more reliable, although it is also older, being released on Oct. 24.

The gold market is closely watching the Nov. 30 referendum. The measure calls for 20% of Switzerland’s official reserves to be held in gold, prevents the Swiss National Bank from selling its gold and requires it to be stored within the country.

A “yes” vote “would compel the Swiss National Bank to buy substantial amounts of gold over the next five years, to increase the percentage of gold reserves,” HSBC said.

This increased buying presumably would tighten the market and support prices. However, HSBC and others also said apparent support for the referendum is waning.

MKS (Switzerland) SA said, in a research note, that “news over the weekend out of Switzerland on the Swiss gold initiative was not supportive.”

Analysts with Barclays said they figure the referendum has a “negligible” chance of passing.

“The shift (to less support in the 20 Minuten poll) is unsurprising, given that all major parties recommended that voters reject the initiative, including the populist Swiss People’s Party, some of whose members sponsored the initiative,” Barclays said.

Furthermore, the SNB has warned that it would impair its ability to conduct monetary policy and threaten the bank’s dividend payments to the cantons due to low income on gold, Barclays said, adding that current gold three-month lease rates are below 25 basis points and 12-month rates are below 50 basis points.

“Given that Swiss voters historically have a strong preference for the status quo, the default vote on popular initiatives – which change the constitution – is ‘no;’ hence, the prospect for the ‘yes’ vote to rise above 50% with one month to go seems very low,” Barclays concluded.

Bank of America Merrill Lynch said for the referendum to pass, it must be approved by both a majority of the public and a majority of cantons, “so a ‘yes’ vote is not our base-case” expectation.

“Having said that, it is worth looking out for polls in the run-up to the referendum, as markets could react to exit forecasts,” the bank continued.

Should the referendum pass and given the current size of the SNB’s balance sheet, BAML estimated initial buying would amount to some 1,500 metric tons, spread out over five years. Gold market liquidity should be sufficient to absorb these purchases, but this would help establish a floor for gold, potentially rallying the market to $1,350 an ounce in the immediate aftermath of a possible referendum approval, BAML said.

Societe Generale, in a research note on Oct. 28, estimated that passage of the referendum means Switzerland would have to buy 2,800 tons at $1,000 an ounce or 1,500 at $1,500 an ounce, assuming that official reserves remained at end-of-2013 levels.

“To provide some context, if the SNB were to buy 500 metric tons of gold per annum for three years, this would amount to 12% of total supply and 10% of total physical demand in 2013,” Societe Generale said.

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By Allen Sykora of Kitco News; asykora@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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