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Profit Confidential (www.ProfitConfidential.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is warning that results from an upcoming referendum in Switzerland could send gold prices soaring.On November 30, Switzerland is holding a referendum in which voters will weigh in on three initiatives as part of the gold referendum: whether or not the Swiss National Bank should increase its gold reserves to 20%, whether the central bank should stop selling its precious metals, and whether all its gold should be held within the country. (Source: Albanese, A. and Erheriene, E., “Markets Nervous Ahead of Swiss Gold Vote,” The Wall Street Journal, October 29, 2014; http://online.wsj.com/articles/markets-show-jitters-ahead-of-swiss-gold-vote-1414566047.)
“If the Swiss vote in favor of adopting the tenants of the referendum, it will mean Switzerland’s central bank will be forced to buy a significant amount of gold bullion,” says economist and lead contributor Michael Lombardi. “According to the most recent data, Switzerland has 1,040 tonnes of gold bullion in its reserves, equal to only 7.8% of its total reserves.”
Lombardi observes that if the referendum passes, the national bank would need to buy about 1,600 tons of gold, or 60% of global mine output this year, to reach the 20% threshold of its foreign reserves. This sudden demand would have an immediate impact on global gold prices, and if the central bank of Switzerland stops selling gold, a significant amount of gold will come off the market.
The third part of the gold referendum would see all of the country’s gold repatriated. The Swiss National Bank currently holds 70% of its gold; 20% is held with the Bank of England and 10% is held with the Bank of Canada.
“This isn’t the first time a country has wanted to manage its own holdings of gold. In 2013, Germany announced it wanted to bring its entire $141 billion gold reserve home from London and New York,” Lombardi explains. “While Germany has since rescinded its demand to bring home the world’s second-biggest gold reserve, it was a prudent move. With the eurozone in economic trouble, it’s a good idea for Switzerland to know where its gold is and to have access to it.”
Lombardi notes that there are a number of major factors that will affect the price of gold bullion. Since 2009, central banks around the world have purchased more gold bullion than they have sold. Consumer demand for gold bullion in China and India is on the rise and the recent dip in gold bullion prices has provided buyers another buying opportunity.
“If the Swiss vote in favor of the gold referendum and the country goes back to adopting the gold standard, this, coupled with the other previously discussed factors, could send gold bullion prices soaring,” Lombardi concludes. “If not, the referendum is a platform for reminding investors that paper money, created out of thin air and backed by debt, is vulnerable.”
For more information on Profit Confidential, visit www.ProfitConfidential.com.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.lombardipublishing.com.
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