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Passage Of Swiss Referendum Would Support Gold, But Other Central Bank Actions Could Offset It –TDS

By Kitco News
Thursday November 6, 2014 9:06 AM

(Kitco News) - If Swiss voters approve the Nov. 30 referendum to require the Swiss National Bank to hold at least 20% of its assets in gold, among other requirements, the news would support gold prices, said TD Securities in a research note.

But the news may not be as bullish as some industry participants have suggested, TDS said. Gold prices could see a $30 to $40 an ounce rally over a week or so, TDS said, but they added that “the new physical demand would not be game-changing.”

To reach the 20% target, the SNB would need to add an average of 350 metric tons of gold per year over the next five years, and it would cost $13.3 billion if current prices hold. Add the SNB’s projected needs to expected purchases from other central banks, and the official sector would likely buy between 500 and 600 tons of gold in 2015.

“This would be supportive as it would shift the supply/demand balance into a deficit, but would not propel it into bull market territory, if the Fed (Federal Reserve) is thought to tighten in the third quarter next year. A point to keep in mind, this year central banks will very likely buy about 420 (tons) and gold has still dropped precipitously, driven by lack of investor and spec (speculative) interest,” they said.

TDS said the market needs to also be on guard for potential sales from central banks, particularly Russia. Russia has been an active buyer of gold in the past two years, adding to its reserves. However, TDS said the sharp drop in crude oil prices and sanctions put on Russia because of its actions toward Ukraine have led to a rapid decline of Russian foreign-exchange reserves.

“This could prompt the central bank to sell the yellow metal to secure liquidity down the road, removing an important component of recent official sector demand,” they said.

TDS said foreign-exchange reserves held by emerging-market central banks have already dropped because of poor economic performance in those countries, lower commodity export prices and a projected relative rise in U.S. Treasury yields.
“Gold's share of total reserves will grow as the FX component is drained due to these factors” and will likely prompt the central banks to moderate their gold buying, TDS said.

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By Debbie Carlson dcarlson@kitco.com
Follow me on Twitter @dcarlsonkitco



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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