Gold prices may surge if Swiss vote on reserves passes … Global gold prices may surge in the coming week if Swiss voters approve a controversial measure that would force their country's central bank to keep at least a fifth of its assets in gold. If the referendum Sunday passes and the Swiss government is forced to start beefing up its reserves, the price of gold could jump to more than $1,350 an ounce — an increase of 18%, Bank of America predicts … – USA Today
Dominant Social Theme: This referendum won't pass. The Swiss are too smart to approve it.
Free-Market Analysis: USA Today has weighed in on the upcoming gold referendum in Switzerland with a predictable anti-gold article.
In fact, the anti-gold tone when it comes to the mainstream media is overwhelming. Central bankers hate the yellow metal because it restricts their freedom to manipulate fiat currency as they choose – and the media reflects this prejudice.
There are many reasons to believe the plight of gold is not so grave as it is being made out to be, but you wouldn't know that from the USA Today article, or other recent ones in the mainstream media.
The paper reminds us that the latest poll, now a week old, by Swiss Television and the GFS Institute showed 38% in favor of the referendum, 47% opposed and 15% undecided. These numbers are actually lower than those in previous polls. ZeroHedge provides a more detailed breakout, as follows:
The poll shows that in Italian speaking areas, the yes vote was actually ahead with 47% in favour, versus 28% against. In the German speaking region, the results were 40% yes versus 50% no, while in the French speaking region it was 29% yes versus 41% no. The 'Undecided' were a low 10% in the relatively decisive German speaking region, 24% in the Italian region, and a significant 30% in the relatively indecisive French speaking region.
Importantly, support for the gold referendum diminished after the Swiss National Bank made statements indicating that holding so much gold with no ability to sell it would severely limit the flexibility of monetary policy.
Here's more from the article:
… Investors apparently are not too bullish about the referendum passing, as gold prices have risen less than 5% in the last few weeks.
Still, Sunday's vote is setting off alarm bells within the Swiss parliament and among business groups. They argue that forcing the central bank to stockpile gold it cannot sell would diminish the bank's ability to set monetary policy and react quickly to changes in the market. In recent years, for instance, the central bank had printed 400 billion Swiss francs ($412 billion), deflating its value against the euro and capping the exchange rate below 1.20 francs ($1.24) to the euro.
The central bank took that step to protect Switzerland's economy from the European debt crisis and boost its exports to the European Union, but the Swiss People's Party has been critical of the move. "To tie the franc to a weak currency like the euro and a weak economic area like the Eurozone is a recipe for disaster," the party claims on its website.
Backing up the currency with increased gold reserves, the group argues, would keep the franc strong and the Swiss economy impervious to global financial crises.
Some analysts counter that a law requiring increased and unmovable gold reserves might have a negative effect on the currency market and the economy in general. "The (central bank) will think twice about buying unlimited amounts of foreign currencies in order to keep its cap for the euro at 1.20 francs," says Teodoro Cocca, professor at Swiss Finance Institute in Zurich. "Most likely, the cap would have to be lifted, the franc will appreciate, and that would be a burden for Swiss exports."
Always, we learn that a strong currency is a hindrance to national economic health. In fact, this doesn't seem to make a lot of sense. A strong currency would attract investment and that in turn would create additional industry for the country in question.
Could the additional industry sell goods and services abroad? Probably so. The market itself would adapt to higher prices and strategies to lower those prices would be pursued. The net effect of a strong currency might be increased by industrial might and prosperity not national penury.
These are perhaps academic arguments, but the reality is that at some point central bankers may have to get used to a resurgence in the yellow metal, given continued demand.
In fact, the negativity of the mainstream media is concealing some interesting developments. Over at Sprott Money, as posted at ZeroHedge, we find the following article, entitled, "Global Gold Demand Will Overwhelm the Manipulators."
The article makes the startling point that the European Central Bank may become a net buyer of gold:
Western central banks know that they need to massively increase inflation. This is the only way in which they can alleviate the huge debt levels that have been accumulated by their misguided wars and spending.
To help assist in increasing this inflation the ECB has indicated that it may begin acquiring gold, shares and ETF's. This news comes as a shock to many, given the ECB's previous resistance to all things gold and the fact that their fiat currencies are in direct competition with the yellow metal.
The article also summarizes current gold demand worldwide, something we have reported on several occasions.
No longer are people fooled by the paper price of precious metals. Premiums have remained relatively high through this price correction and demand has been so intense, that the US Mint was forced to cease sales of their ever-popular Silver American Eagles.
Nation states, such as China and Russia are well known for their affinity to gold and have also continued their accumulation of precious metals. Russia, which officially became the fifth largest holder of gold recently, announced that it has once again increased their gold reserves by another 150 additional tonnes in 2014. An increase of 8.4% year over year.
The demand from China, Russia and India are well known, but now a previous seller of gold products could be entering the arena. The ECB, a long time disbeliever in precious metals is currently battling stubbornly low inflation and may be forced into a very unconventional strategy.
The current price of the dollar against gold is a mystery considering worldwide demand – one that has given rise to predictable charges of manipulation. Price anomalies are rife; demand seems to exceed supply despite a surging dollar price against gold. Even the Sprott article doesn't mention the inability of German officials to repatriate gold from US safekeeping.
When the Swiss referendum doesn't pass – and it seems likely not to – we will no doubt be treated to more negativity regarding gold and its place in the modern economy. But as the Sprott article points out, gold remains a historical and established international money.
The idea that gold and silver, too, are outdated barbaric metals has already proven to be questionable, given gold's ascension to US$2,000 an ounce not so long ago. But there are so many stresses and strains on the current global fiat system that we wonder along with Sprott how long the dollar can be propped up against either metal.
Sooner or later, the value of these metals will see another resurgence. Of course, we don't know when that will be. But we do know the mainstream media is not telling the truth about gold's role in the world, nor about the demand for gold and silver worldwide.
The failure of the Swiss referendum may constitute another opportunity to bash gold and "gold bugs" but such observations will be facile ones. The truth is a good deal more powerful: Gold is a historical money and in all likelihood will remain so, no matter endless negative reports in Western media.
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