Switzerland’s Nutty Gold Referendum

Later this month, Switzerland will hold a rather unusual referendum. If passed, it will require the Swiss central bank to increase its holdings of gold from 8% to 20%. It’s kind of a nutty idea. The central bank would also be forced to hold gold within the country.

Normally, these ideas are dismissed as irrelevant, but this referendum has a serious chance of passing. As you’d expect, all the important people are against the referendum.

If passed, the referendum would prompt the Swiss Fed to dump its holdings of foreign currencies, the euro in particular. As a result, the Swiss franc has rallied. The Swiss government tries to prevent the franc from going for more than 1.20 per euro. That band might soon be breached. It’s recently come to the edge.

Bond yields in Switzerland are now at an 18-month low. The yields are absurdly low. The five-year yield has fallen 0.02% to 0.04% while the two-year is down 0.05% to -0.12%. This is going to be interesting, but I would be very surprised to see the referendum actually pass.

Posted by on November 10th, 2014 at 2:08 pm


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