From Bloomberg:

Swiss voters rejected a measure in a referendum requiring their central bank to hold a portion of its assets in gold, a measure its President Thomas Jordan termed an “invitation to speculators” that could have hurt the economy. Bullion tumbled to a three-week low.

The “Save Our Swiss Gold” proposal stipulating the Swiss National Bank hold at least 20 percent of its 520-billion-franc ($538 billion) balance sheet in gold and never sell any bullion was voted down by 77 percent to 23 percent, the government said yesterday. Polls had forecast the initiative’s rejection. Two other initiatives on tax privileges for foreign millionaires and immigration limits also were rejected.

SNB policy makers warned repeatedly that the measure, which also required the 30 percent of central bank gold stored in Canada and the U.K. to be repatriated, would have made it harder to keep prices stable and shield the central bank’s cap on the franc of 1.20 per euro. That minimum exchange rate was set three years ago, with the SNB pledging to buy foreign currency in unlimited amounts to defend it.

“The key word is relief, but it’s not a reason to crack the champagne corks yet,” said Janwillem Acket, chief economist at Julius Baer Group Ltd. in Zurich. Due to the rejection, “the SNB has more options and fewer constraints on monetary policy,” he said.

“Gold for immediate delivery sank as much as 2.1 percent to $1,142.88 an ounce, the lowest level since Nov. 7”

The SNB said in a statement it was “pleased to hear of the outcome.”

Gold for immediate delivery sank as much as 2.1 percent to $1,142.88 an ounce, the lowest level since Nov. 7, and traded at $1,156.68 at 8:45 a.m. in Zurich. The precious metal lost 4.1 percent this year as the dollar strengthened and investors cut holdings in exchange-traded products. The franc traded little changed at 1.2031 per euro.

Investors anticipating more easing by the European Central Bank helped push the franc to a 26-month high against the euro last month. ECB President Mario Draghi has explicitly cited government bond-buying as a possible policy tool. That could cause further appreciation pressure on the Swiss currency.

“The result may be interpreted as a vote of confidence for the SNB and thereby strengthen the credibility of the floor,” said Beat Siegenthaler, currency strategist at UBS Group AG in Zurich.

Referendums are a key feature of Switzerland’s system of direct democracy, and are held nationally and at a municipal level several times a year. The gold initiative was launched by a handful of members of the European Union-skeptic Swiss People’s Party SVP. Uneasy about the more than 100 billion euros the SNB holds, they contended their initiative will strengthen – – not weaken — the central bank’s credibility.

Image from The Wall Street Journal

Continue Reading