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Switzerland’s Gold Referendum Fail Could Drag Gold Prices Lower

By Neils Christensen of Kitco News
Sunday November 30, 2014 11:25 AM

(Kitco News) - The “spectacular” fail of Switzerland’s gold referendum should help maintain gold’s current down trend, said one market analyst.

The marketplace has been waiting since the start of November for Swiss voters to go to the polls to decide whether the population would force the Swiss National Bank to boost its gold holdings to 20% of its reserves, repatriate all of its gold and never sell any of its reserves.

However the message that the people don’t care about the SNB’s gold reserves was extremely clear. By 1 p.m. in Zurich, an hour after the polls closed, Swiss broadcaster SRF called the results of the referendum with 78% of the population rejecting it; only 22% support the “Save Our Gold” initiative that was first brought forward by the People’s Swiss Party in April 2013.

Adam Button, currency analyst from Forexlive.com, said that although the market was prepared for a “no” victory, the surprise is how big the gulf was between the two sides. He added the strong no vote could lead to some selling pressure when markets open later today. Polls ahead of the referendum had the vote much closer with about 38% supporting the initiative, 47% rejecting the proposal and 15% who were undecided.

“I think the issue in Switzerland is dead and buried. It shows that among the public, the appetite for gold as a reserves asset may not be as strong as we think,” he said.  “It shows that more people support 21st century monetary policy.”

The Swiss referendum was seen as a historic moment for some analysts as it was the first time the general public had a direct say in how a central bank should operate. Button explained that the vote is a clear support for the SNB’s current initiative to peg its currency against the euro. Since 2011, the SNB has pegged the franc to the euro and maintains a floor of 1 euro to 1.20 francs.

“I think this is a rejection that gold is ultimate reserve,” he said.

Button added that if markets were open when the results were out, he would have expected to see a sharp selloff on the overwhelming “no” vote. Although markets will have time to digest the news before trading starts at 6 p.m. EST, Button said that he is expecting to see some weakness at the open.

“Now that the Swiss vote is out of the way the direction for gold is lower,” he said.

George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, agreed that prices will probably be heading lower but added that markets had already priced in the no vote so the downside will be limited.

He added that he doesn’t see the vote as a rejection of gold as a reserve asset but that people voted no out of fear. He said that according to some media reports local governments and residents were afraid that if the central bank had to buy 1,500 metric tons of gold in the next five years then it would not have any profits to pay out to the Canton regional governments.

Gero said that unless there is some short-covering in the marketplace, gold prices are heading lower next week, until markets get some indication of jewelry sales during Black Friday.

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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