Swiss voters have overwhelmingly rejected an initiative that would have forced the Swiss National Bank (SNB) to purchase large quantities of gold over the next few years.
In a referendum vote on 30 November, around 78% of participants voted against introducing a law that would compel the SNB to hold gold reserves equal to 20% of central-bank assets. At present, the SNB holds gold equal to around 7% of its assets.
The proposal, put forward by the right-wing nationalist Swiss People's Party, would also have compelled the central bank to repatriate all gold held abroad, as well as banning it from ever selling any of its gold holdings.
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The idea was opposed by policymakers and businesses, who feared that a yes vote would disrupt the SNB's commitment to cap the Swiss franc's exchange rate at 1.2 francs per euro. The SNB introduced this peg in September 2011 in order to protect the country's exports against the impact of a strong currency.
There were also concerns over the wider economic impact of the proposal. "Purchasing gold in such quantities would weaken the Swiss currency, which would diminish the value of savings and could have inflationary consequences, while the presence on the central bank's balance sheet of such large inactive reserves would seriously impede control of inflation," says Frances Coppola on forbes.com.
With the slim chance that the SNB would become a major gold buyer now gone, the yellow metal continues to face headwinds in the near term. Growing optimism surrounding the US economy remains a significant drag, with the gold price retreating to four-year lows below $1,170 per ounce in recent weeks due to the prospect of rising interest rates and a stronger dollar in 2015.
However, gold's safe-haven status means that it's likely to see a revival of interest from investors in the event of a renewed escalation of the eurozone, fresh geopolitical shocks, or any nervousness in equity and bond markets prompted by Fed tightening.
MoneyWeek continues to recommend holding 5% to 10% of gold in your portfolio as an insurance against threats such as these, as well as a possible surge in inflation caused by loose monetary policies over the next few years.
There are no shortage of reasons to be concerned about the prospects for the global economy and financial markets, and gold offers a hedge that other asset classes do not.
