Financial markets prepare for Swiss gold referendum

While Switzerland makes ready to vote this month on whether to force the country’s central bank to increase its gold reserves, economists warn a ‘Yes’ vote could cause a lot of trouble in financial markets.

The initiative “Save Switzerland’s gold”, which will be put to a popular referendum vote on November 30th, would oblige the Swiss National Bank (SNB) to boost its gold reserves to at least 20 percent of its holdings, nearly three times more than the current level of 7.5 percent.

This fact would require as well the bank to stop selling its gold and repatriate reserves held in Canada and Britain to ensure that all of its holdings of the precious metal are stored within Switzerland.

However, the initiative has been completely rejected by the Swiss government and all the large political parties.

Main Swiss industrial organizations have also warned that the move would tie the central bank’s hands and damage its credibility.

Financial markets are suspicious of the consequences if the initiative passes in a country that already counts the world’s highest gold reserves per inhabitant.

Most observers expect the Swiss to snub the motion, and low global gold prices indicate investors agree.

The price of gold traded on the London Bullion Market slumped by 28 percent last year, and struck a four-year low earlier this month.

However, if the ‘Yes’ side wins, gold risks reacting strongly, since the market is not expecting that result.

Regarding this, the Swiss central bank Chief Thomas Jordan has however appealed to Swiss voters to pay attention, warning that if the gold initiative passes the consequences could be disastrous.

He declared that the central bank’s capacity to take action would be weakened and believes the country would also more easily slip into recession.

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