LONDON, Nov 17 (Reuters) - A vote in favour of boosting Switzerland’s gold holdings at a Nov. 30 referendum won’t necessarily lift bullion prices, Deutsche Bank said in a note, adding there was a “considerable” chance the motion would pass.
The Swiss National Bank could spread out its gold buying, take transactions off market, or use derivatives to cushion gold prices from the impact of a ‘yes’ vote, Deutsche said.
The “Save our Swiss gold” proposal, spearheaded by the right-wing Swiss People’s Party (SVP), would force the SNB to hold at least 20 percent of its assets in gold, make it repatriate gold held overseas and commit never to sell bullion.
A survey last month said the proposal had 44 percent support, short of the majority needed to pass into law. A poll this month showed support had waned.
Gold bulls have flagged the vote as a potential driver of higher prices, but Deutsche said gold, now 38 percent below its 2011 record high, would not necessarily benefit.
While the SNB would have to lift its gold holdings by 1,500 tonnes over five years, purchases would amount to 1.2 tonnes per day, Deutsche said, a “small fraction” of daily turnover.
Some may also be carried out via private transactions with other central banks, minimising market disruption, it added.
“Another option for the SNB would be using gold swaps to ‘window dress’ its balance sheet rather than holding physical gold or futures contracts,” it said. The SNB could borrow gold from counterparties prior to monthly balance sheet reporting dates, re-exchanging it for currency the next day, it said.
Deutsche Bank said that while a successful gold referendum would add to the marginal costs of balance sheet expansion, the SNB would be more aggressive in using other measures to push euro/Swiss franc away from its three-year old currency cap of 1.20 francs per euro.
Amongst these were the possibility of imposing negative rates to make the Swiss franc less attractive.
“For markets, the clearest implication is that the risk-reward for remaining long euro/short Swiss franc remains intact,” the bank added.
The euro fell to 1.20105 francs on Monday, its lowest since September 2012, triggering talk of intervention by the SNB. (Reporting by Jan Harvey and Anirban Nag; Editing by Crispian Balmer)