Speculating like a Swiss
Pfäffikon SZ, Switzerland – It will not have escaped your attention but the Swiss will vote on the so-called “Gold Initiative” on the 30th of November. On this day the Swiss get to vote if the Schweizerische Nationalbank (SNB) should keep at least 20% of its assets in gold. This would mean that the SNB would be forced to purchase CHF 60 billion in a period of 5 years and to subsequently never sell this package. The average gold speculator is rubbing his hands with glee and applauds the effort, without truly realizing what it’s really about.
Remarkable Campaign
The first question that arose to me is who is funding this remarkable campaign in Switzerland? It seems as if it’s the gold lobby itself. Surely, the campaign to get the Swiss to this point has cost a lot of money. It is clear that gold has lost none of its charisma and up to today it manages to convince many investors to make unilaterally risky investments. Gold would supposedly be the life buoy in financially turbulent times. The reactions and opinions regarding gold – and silver – in general can often be labeled as irrational. They do not contribute to increasing the wealth of the rich or the less fortunate.
Gold loses its Luster
Gold lost its luster in relation to monetary policy sixty years ago. It was the American President Richard Nixon who in 1971 let go of the rigid gold standard in favor of the dollar. Moreover, Switzerland left the gold standard in 1954, whereby the “Nationalbankgesetz” was revised in 1978. With that, after more than one hundred years, gold lost its prominent role as monetary authority. Since those times we live in a virtual world of money, which calls for an adapted investment approach. Money is closer to lubricating oil, it is not more than that. That is why it’s not so strange that for instance the S&P 500 sticks to the same trend as the balance sheet of the Federal Reserve. Not to mention the balance sheets of the BOJ and Nikkei.
Price stability
The task for the central bank – in this case the SNB – is to ensure price stability. I have observed that there is no relation between the price stability and the SNBs gold reserves. Moreover, the amount of gold reserves per person in Switzerland is the highest in the world, by far. The SNB possesses over 1040 tons of gold, that to me, seems more than enough. Moreover may I note that the SNB since 2013 has lost some CHF 15 billion on this dull stuff. The Cantons are not too pleased about these disappointing results. Fact is that the SNB has successfully led Switzerland through the recent crisis. Moreover, the SNB is participating in the discussion, which is highly unusual. “Die SNB kann ihr gesetzliches Mandat nicht mehr voll erfüllen, wenn die Initiative angenommen wird.” says the central bank established in Zürich and Bern.
Speculation
Now it’s up to the Swiss. The polls have swung up and down a bit, but the last few point to a “No”, as is often the case. For the Swiss, in general, like to keep things the way they are. In the case of a “Yes” vote the Swiss will be speculating on gold excessively and it will seriously affect their capacity to respond to the next crisis.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
