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Axel Merk: Why The Swiss Should Vote "Yes" On The Gold Initiative

Tyler Durden's picture




 

With gold already moving today on rumors of an increasingly positive tone towards Switzerland's referendum on the Gold Initiative, Axel Merk notes that it appears widely misunderstood and discusses implications for gold, the Swiss franc and Switzerland as a whole.

 

Authored by Axel Merk of Merk Investments,

On November 30th, the Swiss are voting whether to amend their country’s constitution on an initiative entitled ‘Save our Swiss Gold.’

The motivation

The initiators of the gold initiative appeal to Swiss citizens desire not to sell out the ‘family silver.’ In the late 90’s, the Swiss National Bank (SNB) owned 2,590 tons of gold; since then 1,550 tons have been sold at prices far lower than today’s prices. While the Swiss might like their gold, they are fiercely independent. That’s relevant because by imposing a ceiling of the Swiss franc versus the euro, the SNB has de facto imposed the euro on Switzerland, a step closer to joining the euro – something many Swiss object to. More importantly, many Swiss may find it inappropriate for what is supposed to be an apolitical body like the SNB to impose policies with major political ramifications.

Not surprisingly, the Swiss government – which opposes the initiative - does not frame the discussion this way, but instead talks about the flexibility the SNB needs to implement its policies. It also points to the ‘losses’ incurred in 2013 when the price of gold fell.

Let’s look at the initiative and arguments in more detail. The initiative would amend Switzerland’s constitution such that:

• Gold reserves of the SNB must not be sold;
• Gold reserves of the SNB must be held in Switzerland;
• Gold reserves of the SNB must be ‘significant’ and must not fall below 20%.

As transitional measures:

• Switzerland has 2 years to repatriate its gold;
• Switzerland has 5 years to phase in the 20% reserve requirement.

Central bank independence

The Swiss government states the SNB’s independence would be at risk if the initiative passed. Former Federal Reserve Chair Alan Greenspan had this to say about central bank independence: “I never said the central bank is independent.” He did not imply the government tells the Fed where to set policy on a daily basis, but made it clear that it is the government that sets the rules. He fought back against accusations that the Fed finances huge government deficits, arguing critics have it backwards, as the Fed merely goes along. He then added that the Fed’s policies are driven by ‘culture rather than economics.’

It should not be surprising that the Swiss government is against any outside restrictions imposed on the SNB, but not because it jeopardizes central bank independence, but because it reduces the flexibility the government has. But that, of course, is precisely the purpose of constitutional initiatives available in Switzerland.

Gold a risk for the SNB? The Swiss government claims that the sharp drop in gold prices in 2013 lead to heavy losses at the SNB. It’s sad when the official pamphlet representing the government’s view resorts to polemics. Let’s get a few things straight about central bank accounting:

• The gold held by the SNB was purchased at dramatically lower prices. If more gold were sold, no losses, but substantial gains would be recorded.
• In an effort to keep the Swiss franc from rising, the SNB has “printed” a great deal of money, as the chart below shows – almost as much as the Fed:

• Currency isn’t actually printed, but the Fed or SNB purchase securities from banks; they pay for these securities by crediting the account of banks with the stroke of a keyboard. Money is literally created ‘out of thin air.’
• What most are not aware of, however, is that the more money a modern central bank ‘prints,’ the more interest bearing securities it buys, the greater the “profit” of the central bank. That’s why central banks brag how ‘profitable’ their policies have been.
• However, while the Fed has only purchased domestic securities (US Treasuries and Mortgage Backed Securities), the Swiss National Bank has been buying Euro and U.S. dollar denominated securities. In doing so, the SNB has truly introduced massive currency risk.
• Except that central banks don’t really care about losses: the Bank of Israel, for example, has had a negative net worth for over 20 years. Losses for a central bank make for bad PR, but a central bank can simply ‘print’ money to pay for its obligations. Some central banks, such as the European Central Banks, have in their statues that member states must pay-in additional capital should the ECB suffer losses.

Gold sales needed in times of crises?

The Swiss government argues a central bank must be able to sell its gold in times of crisis. Let’s think about this: such a ‘crisis’ might occur when a bank is over-leveraged and must be rescued. To facilitate a ‘rescue’, the SNB is likely to provide “liquidity” (money printing with the promise that it’s only for the short-term). If a bank is insolvent rather than illiquid, it might require a capital injection. That capital has to come from somewhere. If gold is sold for this purpose, it is the people’s gold that’s being sold. The government likes to keep an option open to socialize losses.

We would argue that the very reason “too big to fail” exists is because governments play rescuers that are all too willing to sacrifice the wealth of the public. They say such measures are for the common good – because depositors might lose their money in a bank. Indeed, when a bank collapses, it is the savers that lose out, as the savers are the folks that have loaned money to the bank.

The way to protect savers, though, is through prudent policies that require those that take risks to be responsible for losses.

Gold is the people’s money

Gold is the people’s money, not the government’s money to splurge. If a currency is backed by gold, then the currency represents the gold. It’s not for the government to give away: that’s why the initiative argues against selling any of the gold, ever. It’s for that reason as well that the gold does not need to be kept abroad: gold is a store of value that ought to back the currency in circulation.

20% minimum backing of reserves

Marc Faber, for example, says he has been asked to publicly support the initiative, but has so far declined to do so because he argues it is a haphazard solution; only 100% backing would be worth supporting publicly. In our assessment, Marc is too quick in discarding the merits of the initiative. Combined with the requirement that the SNB will never, ever, be allowed to sell gold, there are major ramifications:

• Assume that 20% of the SNB’s assets are backed by gold and the price of gold drops. The SNB would be immediately required to purchase more gold. As such, over time, the SNB’s reserves would likely be above 20%. In our assessment, dynamics may well move them to be closer to 100% over time. Basically, whenever there is a crisis and the SNB might be tempted to ‘print money’ to bail out an institution, it would chip away at the SNB’s flexibility for future bailouts, more gold is held that cannot be sold.
• An activist SNB that continues to buy foreign securities may, over time, have a hard time defending a ceiling on its currency. That’s because a ceiling on its currency is akin to a bailout to the country (Switzerland) as a whole, arguing that debasing the currency is good for the country.

Competitive Swiss franc?

The Swiss government argues that the strong Swiss franc is a concern to exporters. No kidding. Other concerns are competitors – maybe we should get rid of those, too. And those pesky customers that don’t always feel like buying gadgets and services that are Swiss made. Kidding aside, we would argue that it is impossible for an advanced economy to compete on price. An advanced economy has to compete on value. Very few low-end consumer goods are exported from advanced economies.

Look at beer, as the one area where low advanced economies have tried to compete with what might be considered as a low-end product: first, beer is branded as a premium product these days. In order to have pricing power there has been massive consolidation in the brewing sector over recent decades in much of Europe; Switzerland has been left behind in this trend – but note that these are trends that have been firmly in place well before the financial crisis. A weaker Swiss franc wouldn’t fix these challenges. The alternative to scale is to then try to be profitable at the local level; indeed, microbreweries with no export market have succeeded in many high cost areas.

Swiss multi-nationals have long learned to have natural hedges in place, matching revenue and expenses in their export markets.

Switzerland usually retains the headquarters, possibly R&D. Switzerland has lots of seasonal workers; policy makers should think out of the box, such as paying seasonal workers in euros. It may be far better to pay workers in a depreciating currency than to throw away one’s gold reserves in order to attract more seasonal workers…

Switzerland has always had a tough market. It is said that because of how critical Swiss consumers are, that if someone can have a product succeed in Switzerland, it can succeed anywhere.

We live in a world drowning in debt. The U.S., European Union, Japan, to name a few, cannot afford to pay all the promises they have made. As Alan Greenspan recently said, a welfare state cannot support a gold standard. These other countries will debase their currencies over time in an effort to make their liabilities more affordable.

It won’t be easy to sell to countries that have put policies in place that we believe may impoverish their middle class. The solution, however, is not to impoverish Switzerland. It won’t be easy, but the sooner Switzerland embraces the reality that competitive devaluation is not in its interest, the better.

Back to reality

Having made the case for Switzerland’s gold initiative, note that passing the initiative would only be a first step. Unless policy makers embrace the spirit rather than the letter of the law, it may be an uphill battle. We have already received research reports how the SNB could circumvent its obligations by spinning off assets. The SNB might also engage in derivatives to undermine the spirit of the initiative should it pass.

Let’s also keep in mind that the SNB has five years to implement the 20% backing of its reserves by gold. That should allow the SNB to conduct purchases without disrupting markets. In the short-term, the signaling effect might be the most powerful one: the ceiling of the Swiss franc versus the euro may well get tested. Such ceilings are enforceable only when they represent an unconditional commitment. As soon as someone blinks, the market will test the resolve of policy makers. The passing of such tests may well qualify as resolve. The SNB may be well served to start buying gold from day one if they accelerate their purchases of euros.

Ultimately, people should never rely on their government to pursue a gold standard, but consider pursuing their own, personal gold standard. On that note, we will expand on our discussion of Switzerland’s vote to force the Swiss National Bank to hold a minimum of 20% of its reserves in our upcoming Webinar (click here to register), on November 20, 2014. As part of the webinar, we will also discuss how investors can build their personal gold standard.

 

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Fri, 11/14/2014 - 21:53 | 5450622 DoChenRollingBearing
DoChenRollingBearing's picture

If the Swiss Central bank were to be truly honest (hah), they would have more security and freedom of action with lots of gold on Swiss soil.

The Central Bank of DoChenRollingBearing does not understand the logic of the SNB...

People of Switzerland!  Do the right thing, bring/buy the gold, keep it there safe!

Fri, 11/14/2014 - 22:22 | 5450702 lasvegaspersona
lasvegaspersona's picture

DC

I would argue that if the Swiss like gold they should buy it themselves. 

Why have the collective hold it? The currency needs to be flexible. The people are the ones who should be wealthy. Central Banks do not exist to make a profit, they exist to manage the country's currency.

ZHers have a hard on because they want a 'buy' in the physical market to drive the POG up (I'd like that too) but it won't (at present the Forex market alone does that).

I think using the CB to do the individual's job is wrong. Thinking that one country having a gold standard is good for that country is just crazy. The Swiss already had to intervene because folks were hoarding the franc.

The currency of the future will be like the euro, strictly for transactions, gold will be for saving and will act as the reserve.

The Swiss would be doing themselves a disservice to pass this thing.

Kindly respond with your downvotes. I know this is not the current ZH answer but where am I wrong?

Fri, 11/14/2014 - 23:13 | 5450831 DoChenRollingBearing
DoChenRollingBearing's picture

 

 

Responding with green.  So sorry.

Although I am a fervent FG supporter, it pains me not at all for a relatively responsible nation to buy physical to be held on the behalf (we hope to believe) of a responsible citizenry like the Swiss.  Even if the SNB never sells it.  It's cool, no problem.

1500 tonnes more on Swiss soil would make me feel better if I were living there.

Swiss citizens are free to buy their own gold as well, the more they the buy, the merrier!

Sat, 11/15/2014 - 01:32 | 5451057 Paveway IV
Paveway IV's picture

"...Gold is the people’s money, not the government’s money to splurge..."

If you said that in the U.S., the DHS MRAPS would be ramming through your living-room wall and putting hollow-points into your kids' heads.

In the U.S., gold is the government's money, not the peoples. Everyone just pretends like 1933 never happened.

'Citizen' is just another name for surveilance subject and probable terrorist suspect on the loose. 

Sat, 11/15/2014 - 10:13 | 5451459 Slomotrainwreck
Slomotrainwreck's picture

"Gold is the people’s money, not the government’s money to splurge...gold is a store of value that ought to back the currency in circulation."

 

Correction - ... Gold is a store of value that belongs in economic circulation as an honest means of true market value recognition and to assure the rights of (two) people to participate in financial agreements without government intrusion.

Sat, 11/15/2014 - 00:40 | 5450990 goldsaver
goldsaver's picture

Would agree with all of your points except that you are ignoring that currency is fiat (government mandated). Your salary is denominated in currency. Since this currency is not a free market currency, such as bit coin or any other commercialy available alternatives, your production is, by law, valued in a rapidly depreciating medium. This means that unless salaries rise at the same rate as true inflation, your production is worth less every year even though your expertise and value is rising. Since your value is raising and you expect a rise in standard of living to go along that rise in value, you need an exchange medium that keeps up with your value. CB currencies can not fill that function. The built in depreciation of the currency destroy the value of your work beyond just savings (which I agree should be in Ag and Au not currency).

Look at the numerous articles about the stagnation of salaries, the "wealth gap" and many other simptoms of this problem. Without a brake to slow inflation below natural market expansion (due to improvement in efficiencies or expanded markets) the production of the productive is transfered to the money changers until there is no more value left to produce. At that point you will have the final days of the Soviet Union. Medical Doctors working the black market. Fatory workers pilfering from their jobs and considering it compensation. Government employees taking bribes (and no I dont mean politicians, they already do).

You do understand that the Euro has failed at its most basic function of been a stable exchange medium?

Sat, 11/15/2014 - 01:36 | 5451060 bh2
bh2's picture

Whether currency is fiat or metallic, savings in that currency are not "hoarding". They are capital.

No one with a savings account denominated in fiat would be accused of "hoarding". Normal people never speak that way. Only politicians and economists they pay to confuse the rabble.

Likewise,  a savings account denominated in gold is not "hoarding".

 

Sat, 11/15/2014 - 18:08 | 5452459 123dobryden
123dobryden's picture

mate, the vote is for

 

• Gold reserves of the SNB must not be sold;
• Gold reserves of the SNB must be held in Switzerland;
• Gold reserves of the SNB must be ‘significant’ and must not fall below 20

 

a dont see much buying gold here

Fri, 11/14/2014 - 21:59 | 5450651 Aeternus
Aeternus's picture

Yea, I like gold. We should hang out sometime.

 

https://www.youtube.com/watch?v=Od9D6TECSa0

Fri, 11/14/2014 - 21:32 | 5450573 disabledvet
disabledvet's picture

"Housing is not in a bubble" and "go fuck yourself."

Sat, 11/15/2014 - 02:43 | 5451116 Kprime
Kprime's picture

riiiight, 500 sq ft, 5.9 million dollar flats are the new normal.  no bubble there.

Fri, 11/14/2014 - 21:36 | 5450575 Amerikan Patriot
Amerikan Patriot's picture

I'd be elated to see the Swiss vote Yes, but will be (happily) surprised if it actually happens. 

More likely it'll go down in defeat and gold will promptly sell off, or it'll pass and the powers that be will find a way to circumvent the plain meaning and intent of the referendum. 

Fri, 11/14/2014 - 21:33 | 5450576 Philo Beddoe
Philo Beddoe's picture

Future results. 

Yes will go down with 40 percent of the vote.  A clear cut decision for the no side. 

Nobody fucks with the Santa Claus rally.  

Fri, 11/14/2014 - 21:35 | 5450578 Seize Mars
Seize Mars's picture

Because if you don't they're going to steal every single last fucking ounce.

Fri, 11/14/2014 - 21:35 | 5450580 CoonT
CoonT's picture

This initiative is coming about two years too soon. All it's going to do is interrupt the current, wonderful price decline we have been witnessing. I had hoped we would see sub 1100 by year end. Low, low, low! The lower it goes, the more we can buy

Fri, 11/14/2014 - 22:02 | 5450659 SilverIsMoney
SilverIsMoney's picture

I'm so sick of hearing this shit...

Sat, 11/15/2014 - 06:34 | 5451283 Latitude25
Latitude25's picture

So am I but it seems to be the play book.

Fri, 11/14/2014 - 21:40 | 5450595 Yen Cross
Yen Cross's picture

   I feel a small shift in the force... I LIKE IT.

Fri, 11/14/2014 - 21:40 | 5450599 Cacete de Ouro
Cacete de Ouro's picture

Maybe some G10 central bank governors will jump off the top of the BIS tower in Basle if the yes vote wins in the gold referendum. Here's hoping.

Fri, 11/14/2014 - 21:42 | 5450603 Rob Jones
Rob Jones's picture

Does anyone know how much gold the Swiss would be required to buy if the initiative were to pass?

Fri, 11/14/2014 - 22:09 | 5450678 SilverIsMoney
SilverIsMoney's picture

1500 tons

In a world where Germany couldn't get back 300 we SWEAR we have lol...

This could be such a game changer. Swiss were the first to leave the Gold Standard so it would be pretty crazy if they were the first to go back to one even if it's partial.

How great would it be if thee Black Swan was seen from a mile a way and no one could do a damn thing about it... I think this entire situation is very unique and could be our momemt.

At the same time there's all sorts of weird things going on with gold and silver as it relates to open interest which is near record highs in silver and at 18month highs in gold going into the largest delivery month of the year.

At the same time there's this really odd connection with the Yen and Gold and December is tradtionally a terrible month for the paper price of PMs so there's some really crazy stuff all coming together right now.

And At the same time you've got Putin and the BRICS buying buying buying like crazy...

All of it appears to be coming to a head very quickly but of course we've all been saying this for 3.5 years now and been wrong so it's hard to know what the fuck is going to happen. It wouldn't shock me if we hit $900 next year and it also wouldn't surprise me if I wake up December 1st and it's $2000.

Crazy times...

Fri, 11/14/2014 - 22:23 | 5450713 Philo Beddoe
Philo Beddoe's picture

Great summary. Even better call on the price action. No sarc. 

Fri, 11/14/2014 - 22:42 | 5450764 Rock On Roger
Rock On Roger's picture

February 19, 2015.

Sat, 11/15/2014 - 06:49 | 5451257 Urban Redneck
Urban Redneck's picture

There's a reason we ridicule Laszlo Birinyi and his ruler around here.

1500 tons is statement so ignorant, that it doesn't even belong at an intellectual wasteland like yahoo finance.

Fri, 11/14/2014 - 21:54 | 5450632 Henry Chinaski
Henry Chinaski's picture

Some day, the eagles and buffaloes I have will be exponentially more valuable than they are now.  I don't care if I see that day, but maybe my children, or grandchildren, will be grateful.

Fri, 11/14/2014 - 22:06 | 5450663 Kina
Kina's picture

Gold will be slammed like never before the day before the referendum and day after...I can see them going for sub 1000 ...  no doubt they won't miss the chance to buy up all gold miners for pennies 

 

Be ready to joiIn the gorgining on top quality gold miners at heavy discounts

Fri, 11/14/2014 - 22:35 | 5450748 yogibear
yogibear's picture

Time to buy all you can.

Sat, 11/15/2014 - 00:54 | 5451018 Lanka
Lanka's picture

Many gold miners are curently 10% to 15% above theri Oct 30-Nov 4 lows.

Fri, 11/14/2014 - 22:22 | 5450708 Confundido
Confundido's picture

This is the most stupid move of the gold bugs ever. It will go down in the history of infamy. After the NO wins (either with fraud, coercion, threats, propaganda or whatever), the price will go all the way back to $250/oz, cuz, if the SNB doesn't take gold...who should? right?

Fri, 11/14/2014 - 23:18 | 5450851 DoChenRollingBearing
DoChenRollingBearing's picture

 

 

Legitimate question!  An answer:

The Central Bank of DoChenRollingBearing will back up whatever trucks it can get its hands on to buy physical gold at $250!

 

If there's any left...

Sat, 11/15/2014 - 10:41 | 5451493 SoDamnMad
SoDamnMad's picture

I have a very strong back and will gladly help you load the truck for a cheeseburger and small french fries.

Sat, 11/15/2014 - 05:29 | 5451238 hendrik1730
hendrik1730's picture

Right now, the Chinese, Indians and Russian central banks ONLY buy more than the world production .... and this is ongoing for many years now. You really think there is a nugget left in Fort KnIx ??? Hasn't been audited since 1953 .... and even the Germans cannot get their own stash back ( 7 tons/year but the FED "still has it", yeah, right ... they are melting down bullion from the fifties and have to purify it )

Fri, 11/14/2014 - 22:40 | 5450757 Karaio
Karaio's picture

Uai!

Gold is used as the exchange millennia.

Paper was created by Chinese and Egyptians recently in historical terms.

Jews have always liked gold, is biblical.

Swiss are a recent invention, smart people know that gold is worth.

hehe.

Fri, 11/14/2014 - 22:44 | 5450766 Creepy A. Cracker
Creepy A. Cracker's picture

YES!!!!

Fri, 11/14/2014 - 23:12 | 5450835 AUD
AUD's picture

As is usual, this article completely ignores that it's not the amount of anything backing the currency that counts. It's the QUALITY of anything backing the currency that counts.

The SNB is not about to make its scrip redeemable in gold anyhow, so it means nothing, except maybe a speculative run up in the gold price.

Sat, 11/15/2014 - 00:57 | 5451020 goldsaver
goldsaver's picture

The point of the referendum is precisely that the script can not be redeamable for gold, so you are right there, yet the point of the referendum is to force the hand of the SNB by placing a golden ball and chain around the banker's ankle.

By having to hold 20% of the reserves in gold the SNB has two choices, reduce the balance sheet, effectively decoupling the Swiss Franc from the Euro or purchase and take delivery of massive amounts of gold which they can not sell (no one said they can not lease it to other CBs though).

If this were to pass (it wont), I would see the SNB quickly purchasing large amounts of gold off the open market in order to force the price up as sharply as possible therefore reducing the amount of gold they have to actually purchase. Then, they wold have to manipulate the markets to defend the price of gold or be forced to once again massively purchase gold to raise its price.

Sat, 11/15/2014 - 04:16 | 5451195 AUD
AUD's picture

It won't do shit. The SNB will still be able to monetise whatever garbage it pleases since it never has to pay out in gold.

Sat, 11/15/2014 - 07:39 | 5451318 goldsaver
goldsaver's picture

What part of 20% of reserves must be held in physical gold inside of Switzerland do you not get? They can monetize whatever they want beyond that 20% but, that gold must be physically present in a Swiss Vault.  No need for paying out in gold, the currency is not a gold note nor truly backed by gold. Golds only purpose would be to constrain the growth rate

Of course, the law could always be changed to say that the SNB does not need to hold any reserves. 20% of zero is zero.

 

 

Sat, 11/15/2014 - 08:01 | 5451328 AUD
AUD's picture

And as I said at the start. It's not the amount that counts, its the quality. Percentage means nothing.

Sat, 11/15/2014 - 00:06 | 5450929 Karaio
Karaio's picture

A young and pretty prostitute metiê always charged and the customer demanded a Swiss Army knife.

No one understood why.

When she got older there was a queue at the door of teenagers fighting to win a Swiss Army knife.

hehe.

Sat, 11/15/2014 - 00:07 | 5450931 horot
horot's picture

If I were a swiss, I would vote yes in the heartbeat. That being said, however, I strongly suspect there's no way in hell TPTB will let this referendum to pass. Just look at scottish referendum.

Sat, 11/15/2014 - 00:39 | 5450989 Karaio
Karaio's picture

I agree with you!

If the Swiss were also votataria back by gold!

Manipulation exists but Switzerland is encrusted centuries.

If that bastion falls, fucked!

Bread and circuses will not last long.

Historically Greece and Rome fell because its population weakened.

Lost the lust, the meaning of life.

:-)

Sat, 11/15/2014 - 00:16 | 5450949 Karaio
Karaio's picture

BRICS!

BRICS!

BRICS!

Barter exchange!

Send you food you have oil!

Not dollar, US $!

Enough paper dollar US $!

No War in the World!

Enough!

:-)

Sat, 11/15/2014 - 00:45 | 5451001 847328_3527
847328_3527's picture

All the Swiss I know [all two of them] said they are voting yes. I asked why. They said it's like keeping a gun in your closet [which all Swiss do by law] .... it's for security and safety.

Sat, 11/15/2014 - 01:07 | 5451031 Kina
Kina's picture

SNB  will do as it is told regarding gold prices 

Sat, 11/15/2014 - 01:10 | 5451037 Kina
Kina's picture

I will be watching on POG 29th....hopefully swiss poll out then too..

Sat, 11/15/2014 - 05:32 | 5451201 Goldy Locks
Goldy Locks's picture

About the obligation for the SNB to take physical delivery : people laugh because "there is no chance little Switzerland could get what Germany was refused" : true, but this problem can be bypassed : what would prevent the SNB to sell the gold abroad and buy physical ? (And why didn't Germany do so BTW?)

This could be the little spark that ignites the whole thing, because people would be obliged to recognize that there is not enough physical. And this would be D Day (or even DDD : the D Day of Decoupling Paper-Physical :-), T Time, SHTF etc.

So, as I read in another context, they are protecting the first domino. And that's why I'm still pessimistic about the result of the vote. Massive propaganda here.

Sat, 11/15/2014 - 07:46 | 5451322 goldsaver
goldsaver's picture

And why didn't Germany do so BTW?

 

Germany is not purchasing new gold to repatriate, like the SNB would have to, Germany is returning gold they already own which is stored (supposedly) in NY. Of course the gold is not there and hasnt been for years. At best it is siting in a PBC vault at worst in a Saudi vault.

Sat, 11/15/2014 - 08:47 | 5451357 Goldy Locks
Goldy Locks's picture

Well, I'm talking about Swiss gold already stored abroad, not the one to be purchased to meet the 20%.

So my question about Germany was : why doesn't Germany *sell* the gold they already have abroad, since they won't be able to repatriate it anyway, and use the proceed to buy physical under acceptable delivery conditions ? Of course there would be a loss corresponding to the spread, but at least the loss wouldn't be total.

Sat, 11/15/2014 - 06:51 | 5451292 Kina
Kina's picture

Reality is you cannot persist with fractional reserve banking when the debt is put into things that are dead ends, don't themselves generate anything.

This has been the problem of exponential debt growth now reaching its asymptote, most of the money gone to things that are dead ends. If they went into productive things usually it employed people overseas, if it went into an already obese military complex it is simply trillions pissed down the toilet, if it went into dead end housing giving people homes 5 times the size they need, or extreme welfare subsidisation...and so on.

The ability to print freely without restraint always leads to this outcome...politicians and their bankster masters are the lowest common denominators...herioine addicts of USD/Fiat...wealth is created for the masters where fiat is converted into real assets and the debt/deficit bill is left for a failed country.

 

With some sort of limit, govesnor, natural regulator....it helps to hold back stupid debt, and direct it to real productive uses. TPTB will always find ways to corrupt things ... but making hard increaes the mean time beteween failures.

People collect gold for themselves, which is taking money out of the sytem and ultimately harmful, because of stupid dangerous domestic and global governments. In normal fiscal prudent times people wont bother with gold, because risks are low, and their money tied up in unceccessasry 'insurance'.

Yes in current times gold silver insurance is a no brainer, because govts have failed.

 

A yes in the Swiss vote may be a small step back from the abyss. IF only in the end symbolic as we are all sure they will find a way to circumvent the intention of the referndum.

Sat, 11/15/2014 - 09:20 | 5451392 lucyvp
lucyvp's picture

why is people collecting gold taking money out of the system?  when they buy gold with currency the currency is just held by another.  It doesnt dissappear until the bank calls it home.

Sat, 11/15/2014 - 07:32 | 5451298 Urban Redneck
Urban Redneck's picture

Other than an economic article that was completely ignorant and dismissive of the economic situation in Switzerland, this is actually one of the better pieces written on the Swiss referendum- the local stuff in German or French isn't much better.

This highlights the distinction between education (which the Swiss have... in addition the Schweizerdeutsch ebonics) and intelligence, which is becoming rarer than an unrigged market. If they put off the vote until early next year, we might actually see intelligent debate before the people have to vote on it. Perhaps Pelosi, Gruber and Juncker are right, if you want something done- just give the stupid sheeple their marching orders and don't do anything counterproductive like introducing truth or consequences into the discourse.

Sat, 11/15/2014 - 09:29 | 5451400 bbq on whitehou...
bbq on whitehouse lawn's picture

Reminds me of a story about a driving instructor who kept taunting the student, so the student tore off the stearing wheel and handed it to the instructor saying " you drive".

Sat, 11/15/2014 - 11:32 | 5451555 Urban Redneck
Urban Redneck's picture

That sounds like something I might I have done in my youth.

Now I'm just hunting for brainless hedgetards and PM whores who don't have the common sense to avoid an argument they can't win... with the decline in the quality of the comments around here over the years, you would think it would be easier...

Sat, 11/15/2014 - 11:39 | 5451567 piratepiet
piratepiet's picture

" who don't have the common sense to avoid an argument they can't win... "

If I learn something new I have won, also when I lost the argument.   

Sat, 11/15/2014 - 09:25 | 5451398 bbq on whitehou...
bbq on whitehouse lawn's picture

The vote has little to do with gold, more to do with comitments, expectations and politics. Swiss might have to leave the "really big club". Thats what i see the fuss is all about.

Sat, 11/15/2014 - 10:09 | 5451450 Slomotrainwreck
Slomotrainwreck's picture

"Gold is the people’s money, not the government’s money to splurge...gold is a store of value that ought to back the currency in circulation."

 

Correction - ... Gold is a store of value that belongs in economic circulation as an honest means of true market value recognition and to assure the rights of (two) people to participate in financial agreements without government intrusion.

Sat, 11/15/2014 - 10:11 | 5451456 Slomotrainwreck
Slomotrainwreck's picture

redacted

Sat, 11/15/2014 - 10:45 | 5451499 AE911Truth
AE911Truth's picture

The Swiss do not have to buy gold on the open market. They can simply withdraw gold from the Global Debt Facility to mint gold coins.

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Sat, 11/15/2014 - 10:44 | 5451501 MansaMusa
MansaMusa's picture

So the SNB have 2 years to repatriate their gold?  That's enough time so why is this being reported as a"ciffhanger event"?

Sat, 11/15/2014 - 12:28 | 5451651 Börjesson
Börjesson's picture

I just don't get the suggested rule that "gold reserves of the SNB must not be sold". What's the reasoning behind it? If you own a tonne of gold but can never ever sell it, then what good is it? You might as well own a tonne of bricks for all the good it will do you. Gold that can never ever be sold isn't gold to begin with! It lacks one of gold's most fundamental characteristics. It's not a store of value anymore, since no value can be extracted from it.

Can someone please explain this rule to me?

Sat, 11/15/2014 - 18:14 | 5452476 Quaderratic Probing
Quaderratic Probing's picture

Forest Gump rule Stupid is as stupid does.

Sat, 11/15/2014 - 13:07 | 5451716 Kirk2NCC1701
Kirk2NCC1701's picture

In the final analysis, only Precious* Assets are timeless and universal Money. 

Gold is the oldest and most widely used Precious Asset for these purposes.

* Precious Assets are Assets that are critically precious to a People and a Nation, for Commerce and Survival.  These includes PMs of course, but can logically be expanded to Precious Energies (Fossil Fuels) or Precious Resources (e.g. WATER, if you're a Saudi or Israeli). W/o abundant Water or Energy, not a lot happens (at home, office, field, factory or the transportation system).  E.g. think of how useless a pile of PM is to you on a desert island -- compared to all the food, water, fuel, tools, or a Sat-phone you'd much rather have, when playing Castaway or Robinson Crusoe.  If you want to be more current and pragmatic, just ask the Israeli Farmers/Settlers which they need more of:  Gold from foreign CBs (US, Germany, Ukraine, Iraq...) or more Syrian water for their fields.  The point is... PM alone has its place, but it also has its limits -- just like any single asset or resource has its limits.  IOW:  A single string does not a guitar or orchestra make.  <-- For those who are obsessive-compulsive about a "single variable solution" (lone hero, magic bullet...), from being addicted to too much 'Merican pop culture.

Appreciating Assets are man-made items of value, e.g. Jewelry, Art.  They serve as a "parallel to gold" for preserving wealth, but in a way that is more 'useful' (enjoyable) than bricks of shiny metal.  In fact, a rare painting or work of Art is worth FAR more than gold (with both priced in fiat currency). 

In the Digital Age, there are those who promote Crypto-Currencies (CC) as "Appreciating Assets".  Perhaps, perhaps not.  It "depends".  Very much like RE in Florida, where it depends if you're talking about desirable beachfront property or swamp land that needs to irrigated and developed, before it's "valuable" -- because you made it valuable with capital investments.  I suggest CCs are like that also:  Only rising demand (real of manipulated) can make these "appreciate".  To be truly objective and leave out all personal or emotional bias, I'd call CCs "Speculative Assets" -- and treat them as such:  A tiny fraction of a well-diversified portfolio.  Otherwise, you might as well buy ETF shares of Latinum from a Ferengi, or stock in Dilithium Crystal mines from a Klingon or Clignon.  ;-)  Kirk out.

Sat, 11/15/2014 - 13:07 | 5451717 Kirk2NCC1701
Kirk2NCC1701's picture

deleted accidental duplicate.

Sat, 11/15/2014 - 18:22 | 5452499 Quaderratic Probing
Quaderratic Probing's picture

The Swiss still have a printing press and will have to buy more of them if 20% of reserves are immobile. Gold will sit collecting dust as the central bank inflates future problems away.

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