How YOU Can Help Pass the Swiss Gold Referendum

[Ed. Note: Over the last few days, we’ve been featuring a series of essays by Grant Williams on the Swiss Gold Initiative. (In case you haven’t yet, you can read the first two parts here: Part I and Part II.) Those who’ve been reading our email edition, first heard about it back in Sept. when Dr. Ron Paul graced our pages with his assessment. Then again when our resident currency maven Jim Rickards weighed in on the issue — describing it as one of the “snowflakes” that could lead to a global financial collapse. Today, Mr. Willaims’ explains just how likely it is the Swiss Gold Referendum will pass, and how you can influence the decision for yourself. Read on…]

Until now, the whole idea of the Swiss Gold Referendum has been written off as inconsequential and largely ignored by all but the most buggy of gold bugs. It was written off when Luzi Stamm announced it. It was written off when they needed to get 100,000 signatures; and, amazingly, it was ignored even once they HAD reached the magic number; but recently a number of things have happened which are making some serious waves and causing considerable unease amongst the Swiss banking establishment.

While in San Antonio recently, I was fortunate enough to chat with a displaced fellow Brit who came to meet me at the Casey Summit to talk about the Swiss Gold Initiative, and what he had to say fascinated me.

The gentleman explained a few of the nuances surrounding the framework within which the vote on the Gold Initiative will be conducted, and as I listened I realised that this little vote could potentially become a very big vote indeed.

Firstly, he noted the fact that there isn’t any “no” campaign running against the initiative. Not one that actively campaigns, at least. There will be no billboards, posters, or leaflets distributed making the case for a vote against the SGI. Thus, it’s basically up to the organizers of the initiative to get the word out and educate the Swiss public about the importance of what they’re trying to do in a vacuum.

That, of course, requires money.

During these campaigns, there is no TV or radio advertising allowed, only an old-fashioned leaflet/poster/billboard campaign (how very Swiss), which is an expensive operation to have to finance.

However, a curious quirk of Swiss politics allows anybody (and I mean ANYBODY) to make a donation to campaigns such as these from anywhere in the world — with 100% anonymity.

As our conversation continued, I learned that the initiative plans to blanket the country with billboards, posters, and leaflets and to conduct a comprehensive social media campaign to engage the vital 18-44 demographic — a strategy completely new to the somewhat antiquated world of Swiss politics.

All this felt like it was going to be rather expensive for such a small campaign, but with the donation system certainly helping their chances, Stamm & friends embarked upon their fundraising venture; and, as I mentioned previously, their first move was a masterstroke.

Over the past several years, I have been extremely fortunate, through regular encounters around the world, to have found myself in a position to call Egon von Greyerz my friend.

Egon von Greyerz

Egon is a wonderful man with a keen intellect, a great sense of humour, and a code of ethics which is utterly above reproach. He is also now the “face” of the Swiss Gold Initiative to the gold industry.

I recently chatted with Egon about the progress being made, and what he had to say was fascinating:

Switzerland now has the opportunity to be the first country in the world with official partial gold backing of its currency. A currency backed by gold means the government and the central bank cannot manipulate the currency at will and print worthless pieces of paper that they call money. This would stabilise the real value or purchasing power of the Swiss franc. A currency with stable purchasing power leads to stable prices and promotes savings and investment rather than spending and credit. Officially Switzerland, like most countries, has a low inflation rate; but for the average person, consumer prices in the shops for food and other necessities continue to rise.

Even though the official Swiss inflation is low, there is massive inflation in some sectors like housing and financial assets. The money printing in Switzerland combined with artificially low interest rates have led to a major housing bubble.

Swiss housing prices are now unaffordable for most Swiss and in relation to income prices are now in an unsustainable bubble. An increase of Swiss mortgage rates from current 1-2% per annum to a more normal 4% could lead to major mortgage defaults and a housing collapse.

The Swiss have a history [of] putting some of their savings into the Vreneli, the Swiss 20 franc gold coin. In recent times, as spending on credit rather than savings has been the norm, the Swiss have bought less gold, but in spite of that they have more affinity with gold than most Western nations. The Swiss gold industry is also very significant, since Swiss refiners produce nearly 70% of the world’s gold bars.

The most prolific savers in gold are of course the Indians, mainly by buying jewelry. But in the last few years China has been the biggest buyer of gold. There is a constant flow of gold going from the West to the East. This has created a shortage of gold in the West.

The government and SNB will be very concerned about the poll results and will intensify their propaganda concerning how bad this would be for Switzerland. But as you know, the Swiss are an independent lot and don’t like the government telling them what to do. It will be extremely interesting.

Interesting indeed.

The poll that Egon refers to is the next of those things that are making waves.

The official press launch of the SGI campaign was held this past week, with Luzi and his committee and Egon speaking to the Swiss media; but AHEAD of that launch, a poll was conducted in 20 Minutes, a popular German-language free daily newspaper published both in print and online.

The question asked was simple: “How will you vote in the upcoming Save Our Swiss Gold referendum?”

The results were a surprise to just about everybody — including Luzi and Egon.

A total of 13,397 people were polled from all across Switzerland on October 15, and the poll clearly demonstrated that already — without any campaigning — there is a solid block of voters inclined to vote FOR the initiative:

"20 Minutes" Poll on Swiss Gold Initiative

With the establishment being unable to actively campaign AGAINST the Initiative, all has been quiet for many months (which is why you probably haven’t heard anything about the SGI); but with the dawning awareness that this little campaign might actually grow some legs, a few members of that establishment have been getting a little antsy.

Firstly, last year when the proposal was tabled in parliament, we had this reaction:

( Switzerland’s upper house gave the thumbs down to a controversial proposal yesterday that would force the Swiss National Bank (SNB) to more than double its gold holdings by requiring the bank to permanently hold 20% of its assets in bullion — but the rule could still ultimately become law in a popular referendum later this year.

The “gold initiative”, the brainchild of the right-wing Swiss People’s Party (SVP), which also calls for SNB gold to be repatriated to Switzerland — much of it is currently stored in London, New York, and Canada — is slated for a public referendum after the SVP secured 100,000 signatures in support of the measures last year.

Switzerland’s political establishment, however, remains vehemently opposed, fearing a gold quota would severely undermine the SNB’s ability to carry out its mandate — and their case has been helped by the poor performance of the metal over the past year.Eveline Widmer-Schlumpf

Speaking before the upper house yesterday, finance minister Eveline Widmer-Schlumpf warned the “credibility of monetary policy” would be “greatly impaired” if the floor was introduced. She also described gold as “among the most volatile” and “riskiest investments” on the central bank’s books. The SNB took a $16 billion loss on its gold holdings last year as prices fell 30% — contributing significantly to a Sfr9.1 billion loss on total assets, as shown by data released by the bank today.

SNB governor Thomas Jordan

SNB governor Thomas Jordan has also slammed the idea, arguing it would severely restrain the SNB’s policy choices by restricting the flexibility of its balance sheet. In a worst-case scenario, he warned last April, the assets side of the SNB’s balance sheet would over time be largely comprised of unsellable gold, which could force the bank to turn to money creation to finance its expenses.

“For the SNB to fulfil its mandate at all times, its capacity to act in monetary policy matters must not be compromised by rigid rules on the composition of its balance sheet,” Jordan stressed.

It’s laughable, actually.

No word from the finance minister on the huge potential gains which were foregone when the SNB sold their gold at the lows (gains which, at today’s prices, would have been in the region of CHF 27.5 bn). No. We won’t mention those. Nor will we even bother to go anywhere near Jordan’s fears that the SNB might be “forced” to (GASP!) “turn to money creation to finance its expenses.”

No. We’ll leave those well alone and instead visit a “dossier” opened by the SNB on its website a couple of weeks ago as the realization dawned upon them that the SGI won’t just “go away” if they don’t talk about it:

( …Now, with less than two months until the vote, the central bank is intensifying its communication. It opened a “dossier” on its website yesterday where it will post materials outlining why it “reject[s] the initiative”.

“Monetary policy transactions directly change our balance sheet. Restrictions on the composition of the balance sheet therefore restrict our monetary policy options,” [SNB Vice-chairman Jean-Pierre] Danthine explained.

“A telling example is our decision to implement the exchange rate floor vis-à-vis the euro… with the initiative’s legal limitation in place, we would have been forced during our defence of the minimum exchange rate not only to buy euros but also to buy gold in large quantities.

“Our defence of the minimum exchange rate would thus have involved huge costs, which would almost certainly have caused foreign exchange markets to doubt our resolve to enforce the rate by all means.”

Sometimes I think these people are completely delusional.

So, let me get this straight: gold is a relic which restricts your ability to do such vital things as… oh, I dunno, promise to print unlimited amounts of your currency in order to peg it to another, failing currency and thereby debase it by 9% in 15 minutes? Or it might mean the market doesn’t have complete faith that you might be completely relied upon to do really smart things like that?


Somebody. Please? Make it stop.

The Swiss establishment has been reliant upon the public’s ignorance in these matters, but now they are up against a formidable opponent in Egon von Greyerz. Not only that, but they can clearly see that, as elsewhere around the world, the public is fast becoming disenchanted with the status quo; and that is potentially very dangerous for these people.

What is important to understand here is that if the initiative passes it will be part of the Swiss constitution IMMEDIATELY — not in two years, as many blogs and websites are suggesting. This means that the government and parliament cannot touch it. Only another referendum can change it. This is proper democracy for you.

The closer we get to the vote on November 30, the bigger this story is going to become, and the bigger it becomes, the higher the chance that the yes vote wins.

Should that happen, it will undoubtedly set off alarm bells throughout the gold market, as yet more physical gold will need to be repatriated and another sizeable, price-insensitive buyer will enter the marketplace.

Curiously, as awareness of this initiative has risen in the last month or so, two strange things have happened in the gold markets, one in the murky world of central bank gold operations, the other in the equally murky world of China’s Shanghai Gold Exchange.

Firstly, the Russian central bank (which, unlike its Western counterparts, happily publishes its dealings in the gold market for the entire world to see) made its biggest monthly purchase in 15 years in September when they purchased 1.2 million ounces:

Russian Central Bank Gold ReservesSource:

While in China, withdrawals from the Shanghai Gold Exchange suddenly spiked to 68.4 tonnes (the third-highest level on record):

Shanghai Gold Exchange - Gold Withdrawals

Do either of these moves have anything to do with pre-positioning ahead of the Swiss referendum outcome? I have absolutely no idea.

What I DO know, though, is this:

Most people have written the SGI off as a sideshow of little consequence. Most people assume that it won’t get passed. Most people assume that, if it IS passed, it won’t make any real waves.

I think most people are wrong.

I think there is a VERY good chance the motion will get passed; and I think that, when it does, it will spark calls for similar actions in neighbouring countries such as Austria, for example, or maybe the Netherlands.

I also think that the physical gold market is far too tight to be able to handle any sudden widespread demand for large-scale repatriations of gold.

This story is going to be getting more attention in the coming weeks. Already, Rick Santelli has spoken about it on CNBC, and so has Eric King in a tremendous interview, and this is only the beginning. More polls will follow, as will increasingly desperate rhetoric from the SNB.

Amidst it all, calm and confident will be my friend Egon and the tenacious Herr Stamm.

Don’t bet against them.

The official website for the Swiss Gold Initiative is here.

And if you’d like to make a completely anonymous donation in any amount to help the initiative fund their campaign to restore sound money at the heart of Europe, then click HERE.

At the top of the page, you’ll see a button marked “Donate.” (I’ve done it and it’s easy — oops, there goes my anonymity.)

Oftentimes, it’s movements like the Swiss Gold Initiative that cause ripples which change things for the better, and I have a feeling that the time is ripe for an unexpected outcome.

Either way, I think you’ll be seeing a lot more of this little piggy in the days and weeks to come.


Grant Williams
for The Daily Reckoning

Ed. Note: When the Swiss Gold Referendum comes to a vote on Nov. 30, gold investors (and central banks) around the world will be watching with rapt attention. We’ll have to wait to see what the good people of Switzerland decide, but if you want to stay up-to-date with this and the other goings-on in the market, your best bet is to sign up for the FREE Daily Reckoning email edition. Once inside, you’ll get regular updates on exactly how this story is playing out and actionable advice on how to profit no matter what happens. Click here now to sign up for The Daily Reckoning, completely free of charge.

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