A public referendum to be held on November 30 in Switzerland over whether the Swiss National Bank should have 20% of its holdings in gold could create volatility for CHF and of course gold. If the Swiss vote for the SNB to hold more gold that would send gold prices higher, whilst pushing CHF lower with the potential consequences for the EUR being more nuanced. Yet the pressures of meeting a commitment to maintain 20% of its reserves in gold (7.5% at present) should help the SNB maintain its EURCHF peg of 1.20, even if the European Central Bank did eventually go for full scale quantitative easing. At the moment CHF is in a mild downtrend versus the EUR. To meet the proposed gold requirements, widely estimated around 1,800 tonnes or 2/3rds of annual production, would put the SNB in a difficult position. It faces having to buy more expensive gold in exchange for weakening CHFs or it could use some of its huge EUR reserves, but that would risk putting upward pressure on the EURCHF peg. Nonetheless, it would create speculation as to whether or not EURs would be used, which could become a negative for the EUR. By Justin Pugsley, Markets Analyst MahiFX Follow @MahiFX on twitter Much would also depend on the pace of gold accumulation – if it is done slowly over many years then the impact on the gold and forex markets would be more muted than if it has to happen quickly. However, once the gold threshold is achieved, it would involve the SNB having to buy more gold any time it intervened in the forex markets to buy EURs to defend the EURCHF peg – a potentially unwelcome complication for the central bank. Currently, the SNB has around CHF 460bn (USD 475bn) in foreign reserves with 45% denominated in EURs and 29% in USD. Gold vote could be bearish for CHF Gold bugs will probably be denied victory Fortunately, for the SNB, the chances of the referendum deciding in favour of it holding more gold are probably not that high. The national parliament is strongly against it as is the SNB. Referenda also don’t that often lead to big changes in policy. Yet another hurdle is that to pass, the referendum needs to muster more than 50% of the votes in the country and in the cantons. A further complication is that there will be 3 questions on the ballot paper, which could split the vote. Nonetheless, the post 2007-8 crisis period does seem to have ushered in a new era where what was once considered extraordinary has become almost normal, such as central banks creating vast amounts of new money through QE. A potential victory for the Swiss gold bugs therefore can’t entirely be ruled out. If it is passed it would very likely rekindle a rally in gold prices as speculators would hoard the metal ahead of the SNB’s purchases. Also, every time the EUR went through a period of weakness (and put pressure on the EUR/CHF peg), gold prices would rise in anticipation of the SNB purchasing. It would therefore introduce a welcome new dynamic into the market for traders, but not for the SNB, which would effectively be giving market participants a free ride. Justin Pugsley Justin Pugsley MahiFX is headed by David Cooney, former global co-head of currency options and e-FX trading at Barclays Capital and responsible for the award winning e-commerce platform BARX and Susan Cooney, former head of e-FX Institutional Sales in Europe for Barclays Capital. Operating as a market maker, MahiFX provides traders direct access to institutional level execution speeds and spreads through its proprietary-built fully automated pricing and risk management technology, lowering the cost of retail forex trading. MahiFX global operations are headquartered in Christchurch, New Zealand with offices in London, UK with development and support teams in both locations for 24 hour service. The company is regulated by The Australian Securities and Investments Commission (ASIC), Australiaâ€™s corporate, markets and financial services regulator. Article by Justin Pugsley, Markets AnalystÂ MahiFXÂ Follow MahiFX onÂ twitterÂ and onÂ facebookÂ Disclaimer: This material is considered a public relations communication for general information purposes and does not contain, and should not be construed as containing, investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. MahiFX makes no representation and assumes no liability as to the accuracy or completeness of the information provided. The use of MahiFXâ€™s services must be based on your own research and advice, and no reliance should be placed on any information provided or comment made by any director, officer or employee of MahiFX. Any opinions expressed may be personal to the author, and may not reflect the opinions of MahiFX, and are subject to change without notice View All Post By Justin Pugsley Opinions share Read Next EUR/USD: Consolidating Before Next Leg Lower; Outlook & Forecast Yohay Elam 8 years A public referendum to be held on November 30 in Switzerland over whether the Swiss National Bank should have 20% of its holdings in gold could create volatility for CHF and of course gold. If the Swiss vote for the SNB to hold more gold that would send gold prices higher, whilst pushing CHF lower with the potential consequences for the EUR being more nuanced. 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