Gold ETFs Could Surge on Swiss Central Bank Referendum
Switzerland will be voting on a new referendum next month to increase its central bank bullion reserves in an attempt to support the franc currency, potentially lifting gold-related exchange traded funds.
Over the past three months, the SPDR Gold Shares (GLD) , iShares Gold Trust (IAU) and ETFS Physical Swiss Gold Shares (SGOL) have all declined about 7.0%.
Meanwhile, gold holdings in these physically backed ETFs have steadily diminished. [Despite Bullion Gains, Gold ETF Assets Drop]
COMEX gold futures now trade around $1,199 per ounce, touching a three-week low Thursday.
However, the bullion market could turn around if the Swiss National Bank is forced to increase its gold reserves, which would require the central bank to purchase just over half the world’s annual mine supply.
Ahead of the referendum on November 20, recent polls reveal a lead for the Yes campaign that would force the SNB to hold at least 20% of its reserves in gold, up from its current 7% in reserves, reports Henry Sanderson for Financial Times.
Moreover, a yes vote on the upcoming referendum would restrict the central bank from selling gold under any circumstance, which the SNB argues will diminish its ability to enact monetary policies.
According to Barclays, the Swiss central bank would have to buy almost as much gold as all the global holdings of physically backed ETFs. If the vote is passed, Barclays calculates that Switzerland will increase demand buy about 300 tons per year, with a period of five years to buy more gold. Over the past few years, Switzerland has been selling gold to purchase euros in an attempt to stave off strong safe-haven demand, and its reserves are now at its lowest since the IMF has collected data since 1948.
Gold prices have been tumbling as a recovering U.S. economy and improved equities have helped shift investors into a risk-on mindset. Additionally, the recent gains in the U.S. dollar has also weighed on commodities, which become more expensive to overseas investors.
“Our forecast is for a strong dollar this year and next, and that has more than anything else got the gold market on the defensive right now,” James Steel, an analyst at HSBC, said in the article.
SPDR Gold Shares
For more information on the gold market, visit our gold category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
