Swiss Vote Cliff Notes: The New Gold Standard Debate – Part 1

The Swiss franc was the very last currency to be divorced from the Gold Standard so it perhaps makes sense that the country known for economic soundness and political stability would be the first to seriously consider a second trip to the gold-backed altar. 

In order to grasp the true meaning of the upcoming “Save our Swiss Gold” referendum, we must take a quick look back at the history of gold in Swiss society, the power of the IMF, the dynamism of Swiss independence, and the emerging class war between paper stock holders and those concerned about the value of real money in real terms.

The Swiss are known for their long tradition of political neutrality, banking acumen, and extreme privacy when it comes to money and wealth. The “Swiss Bank Account” has become synonymous with the uber-rich and secret depositors with vast fortunes of tax-free holdings. This Swiss banking “code of secrecy” actually goes back centuries to the kings of France who required strict confidentiality in all financial dealings. Swiss banks have subsequently been protecting depositors for centuries. 

Legislation was enacted in 1713 via The Grand Council of Geneva to impose rigorous disclosure clauses that prohibited banks in Switzerland from releasing account information to any third party. This vow of anonymity protected private fortunes as Swiss-based accounts quickly became safe havens for the mega moneyed, the exiled, and those seeking to either safeguard their finances in a neutral nation or avoid taxes in their homeland.

The Swiss are also known gold aficionados. Switzerland refines up to 70% of the world’s gold. Each year, thousands of tons of raw gold are imported into Swiss refineries to be brought to the highest levels of purity.  Geneva is the former head of the World Gold Council, a busy gold trading center, and a global hub for premium gold jewelry and some of the finest watches in the world. Switzerland is also a storage and transportation center for European gold reserves. Tucked securely into the Alps, it is an ideal, natural gold vault and Swiss refining and vaulting has soared over the past decade with gross imports reaching 3082 tons and gross exports hitting 2786 tons in 2013.

The Swiss trade and refinement business has not only provided the country with large gold reserves, but their Constitution has historically mandated that their currency be partially backed by gold. As a result, the franc is often considered a “hard currency” making Swiss banks even more attractive to investors around the world. In 1992, however, Switzerland joined the International Monetary Fund which prohibits its members from holding any currency supported by gold. A new Swiss Constitution was subsequently approved in May of 2000 dramatically severing the franc’s link to gold and launching Switzerland into the unstable world of global fiat currencies.

The Swiss National bank proceeded to sell over 1550 tons of the country’s 2590 ton gold reserves and did so at the bottom of the market. The SNB has been an aggressive seller of gold over the past decade and by some reports has sold a ton of gold per day for the past five years. Much of the gold that remains in the bank’s control has been leased out or stored in other countries. The exact locations and amounts are indeterminable since the SNB has refused to conduct an audit of its physical holdings.

This is a two part article. Part 2 will be printed on Thursday November 27, 2014

Once again Scott Carter, my associate from Lear Capital has helped to craft a well written, well researched article. Scott is one of the leading advisors and authorities in the precious metals market. Lear Capital is a specialist in gold and silver investments.