Swiss Gold - On Hold.
The tussle over the proposed sales of gold and the desire among the Swiss people to make an international humanitarian gesture, versus the impulse to conserve the wealth of the country for domestic purposes, may well create further paralysis in any move to sell gold.
Widespread fears that Switzerland will shortly start to sell large quantities of its gold are unfolded, says the World Gold Council in a new publication, Switzerland's Gold.
The Swiss electorate will be voting in a referendum on Sunday, April 18, to change the country's constitution. If this is approved, the constitutional link between the Swiss franc and gold will cease to exist, though it ceased to operate as a de facto arrangement many years ago.
Assuming the referendum is approved, it will pave the way for legislation to remove the link and, furthermore, it will also remove the constitutional barrier which prevents the Swiss National Bank (SNB) from selling any gold.
However, in a 10-point summary of the background to the proposed changes, Gary Mead, head of research at the WGC's Centre for Public Policy Studies (CPPS), says that even on the assumption that the referendum passes and that the necessary constitutional and legal changes are approved, the need to gain political agreement for the detailed process may hold up significant gold sales.
Switzerland currently holds 2,590 tonnes of gold in its official reserves and is fourth largest holder of gold after the central banks of the Eurosystem, the United States and the IMF. It has been proposed that up to 1,300 tonnes of Swiss gold could be sold over a prolonged period, with the proceeds from some 500 tonnes to be used to fund a 'Solidarity Foundation' to help under-privileged peoples around the world, while those from the remainder would be used to finance projects in Switzerland.
"Several legislative and political hurdles must be surmounted before any gold can be sold," says Mead. "The SNB and the Finance Ministry have made their recommendations but how they are practically implemented will be a parliamentary decision, and one fraught with uncertainty."
The creation of the Solidarity Foundation will have to be approved via another referendum and opinion is greatly divided over it. There is also still disagreement over how the other 800 tonnes could be used, more than 18 months after the proposal to sell some gold was first aired.
"According to the SNB, any sale of gold could only follow a decision by a majority of the Swiss parliament as to what to do with the proceeds. In Switzerland such decisions depend upon the achievement of a prior consensus outside parliament among a wide variety of political constituencies," says Mead.
Another factor is the general election scheduled for October this year, which may further delay the planned legislative timetable.
"Although there is determination among some senior Swiss politicians and within the SNB to sell some gold, it is evident that the debate as to the purposes of the proceeds from such sales is at a very early stage. Without that debate being settled, gold disposals of any kind are highly unlikely," says Mead.
Copies of Switzerland's Gold is available from the WGC at King's House, 10 Haymarket, London SW1Y 4BP, or via the WGC website at www.gold.org, or from Marston Webb International, 60 Madison Ave., Ste. 1101, New York, NY 10010, Tel: 212/684-6601, Fax: 212/725-4709.