Swiss Gold Rejection Deals Blow

[asianobserve]

Swiss Gold Rejection Deals Blow to Investors Hurt by Price Slump

As Switzerland rules out that its central bank will be the next big buyer of gold, sending prices to the lowest in more than three weeks, there's one more reason for investors to be bearish.

Voters yesterday rejected a referendum requiring the Swiss National Bank hold at least 20 percent of its 520-billion-franc ($540 billion) balance sheet in gold. Had it been approved, it would have led to purchases of at least 1,500 metric tons over five years. With lower oil prices reducing costs for consumers and the U.S. considering raising interest rates, demand is fading for hedges against inflation such as gold.

Gold has lost 19 percent since peaking in March and investor holdings of exchange-traded products are near a five-year low. While prices probably won't be affected too much by the "no" vote of the initiative called "Save Our Swiss Gold," approval would have improved sentiment and increased prices by as much as $50 an ounce, HSBC Holdings Plc estimated in November.

"Gold had received some support in the last couple of weeks" before the vote, Georgette Boele, an analyst at ABN Amro Bank NV in Amsterdam, said by phone. "We'll get more pressure on gold. The overall outlook is not looking great."

Bullion for immediate delivery fell as much as 2.1 percent to $1,142.88 an ounce today in Singapore, the lowest level since Nov. 7, when it reached a four-year low of $1,132.16. It was at $1,152.25 at 8:05 a.m. in Singapore. Investors sold 146.7 tons from exchange-traded products in 2014, wiping about $7.5 billion from the value of holdings, data compiled by Bloomberg show.

No Vote

The proposal stipulating the SNB raise the portion of its assets held in gold from about 8 percent now was voted down by 77 percent to 23 percent.

The initiative would have also prohibited the SNB from ever selling any of its bullion and required the 30 percent currently stored in Canada and the U.K. to be repatriated. Polls forecast the initiative's rejection.

Approval would have probably made Switzerland the world's third-biggest holder by country of the metal. Analysts had said purchases would have been at least 1,500 tons over five years. Adding 300 tons a year would equal about 7 percent of annual global consumption.

SNB policy makers had a higher estimate, forecasting 70 billion francs worth of gold, or about 1,932 tons.

National Wealth

Proponents of the initiative said boosting bullion holdings would help preserve national wealth. The SNB and national government had argued that approving the measure could undermine efforts to prevent the franc from surging against the euro and erode the bank's annual dividend distribution to regional governments.

Signs of muted inflation around the world have made gold less attractive. Consumer prices in the euro-area slowed in November to match a five-year low, prodding the European Central Bank toward expanding its unprecedented stimulus program.

Gold purchases by central banks globally have helped support prices, according to Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. They added an average of 372 tons to reserves annually from 2010 to 2013, World Gold Council data show. Purchases will probably be 400 tons to 500 tons this year, the group estimated in November.

Demand Component

"If central bank buying would not be there, gold would probably trade lower," Briesemann said by e-mail Nov. 25. "It is still an important demand component."

SNB policy makers warned repeatedly that the gold measure would have made it harder to keep prices stable and shield the central bank's cap on the franc of 1.20 per euro. That minimum exchange rate was set three years ago, with the SNB pledging to buy foreign currency in unlimited amounts to defend it.

The SNB's assets have increased by more than a third in the wake of its setting the cap in September 2011 to ward off deflation and a recession amid the euro area's debt crisis. It currently holds 1,040 tons of gold. The Swiss already have the world's highest amount of bullion per capita.

"The Swiss have always had an affinity with gold" and that's one of the reasons for the referendum, Eric Schreiber, an independent investor and former head of commodities at Swiss wealth manager Union Bancaire Privee, said by phone. "It would have been supportive for gold due to the fact that if gold prices dropped, the SNB would have bought more. That would have put a floor on gold."

Swiss Gold Rejection Deals Blow to Investors Hurt by Price Slump - Bloomberg


This is a resounding "NO" against gold and another blow to Putin (his gold reserve value is going down)...

 

[pmaitra]

Good news for gold buyers, especially millions of Indians, who will use this opportunity to buy and hoard gold.

 

[sgarg]

This news does not affect Russia really. Russia is not a big hoarder of gold. The commodities are down so is gold.
The downcycle of commodities is an advance indicator of downcycle of economy.

 

[pmaitra]

This news does not affect Russia really. Russia is not a big hoarder of gold. The commodities are down so is gold.
The downcycle of commodities is an advance indicator of downcycle of economy.

Russia is actually buying out gold. I have a feeling that Russia might peg its Rouble to the gold standard and then sell its energy only in Roubles.

How would this work?

1. A purchasing country or company (PC) who wants to buy, say Russian gas, will have to deposit gold with the Russian Central Bank (CBRF), get Roubles in return.
2. PC will then be able to deposit those Roubles in any bank in Russia.
3. PC will then use those Roubles to buy Russian gas.

 

[sgarg]

@pmaitra, a gold standard is not possible at this time. Russia cannot peg ruble to gold.

International trade cannot run on gold. This is not the way trade is structured.

I think ruble will stay weak until Ukraine conflict is resolved. This conflict will be resolved - either militarily or diplomacy, as Ukraine cannot sustain this military operation. People forget the dire financial condition of Kiev.

 

[pmaitra]

@pmaitra, a gold standard is not possible at this time. Russia cannot peg ruble to gold.

International trade cannot run on gold. This is not the way trade is structured.

I think ruble will stay weak until Ukraine conflict is resolved. This conflict will be resolved - either militarily or diplomacy, as Ukraine cannot sustain this military operation. People forget the dire financial condition of Kiev.

Gold standard is the only way out of this perpetual cycle of inflation and deflation that is wrecking havoc around the world.

You can multiply paper currency by loaning money and expecting interest in return, assuming your loans and interests will be paid back, but you cannot multiply wealth this way. The only way to increase wealth is by increasing production, of food, energy, housing, and tangible things you need to survive.

The Rouble is not weak. It is only weaker w.r.t. the Dollar, and more the Dollar is used in trade, the more will its demand be, and the stronger it will get, and the only way for the Rouble to get strong is to peg it to gold.

In my disagreement, I would say that gold standard is possible.

 

[sgarg]

@pmaitra, the industrial economy is based on fiat currency. The gold has one big problem - it can be hoarded and this removed from the market. Gold cannot be artificially created.

A shortage of currency crashes the economy.

Russia also continues to print rubles in large quantities. Russia does have government budget deficit.

If Russia ties to gold - then a large number of rubles will have to be taken out of circulation.

 

[asianobserve]

Russia is actually buying out gold. I have a feeling that Russia might peg its Rouble to the gold standard and then sell its energy only in Roubles.

How would this work?

1. A purchasing country or company (PC) who wants to buy, say Russian gas, will have to deposit gold with the Russian Central Bank (CBRF), get Roubles in return.
2. PC will then be able to deposit those Roubles in any bank in Russia.
3. PC will then use those Roubles to buy Russian gas.

@pmaitra

The negative vote of 77% of the Swiss electorate will tell you a lot about the unattractiveness of gold standard. Note that what the Swiss proposal was only the hiking up of gold reserve up to 20% yet it was resoundingly struck down.

Your proposal will spell the doom of Russian oil industry as nobody will go through the trouble of trading in gold. Note that gold is more volatile than the US dollar.

 

[pmaitra]

@pmaitra

The negative vote of 77% of the Swiss electorate will tell you a lot about the unattractiveness of gold standard. Note that what the Swiss proposal was only the hiking up of gold reserve up to 20% yet it was resoundingly struck down.

That is one way to put it. The Swiss are not going to buy up a lot of gold means there is going to be a glut in gold supply in the market, hence, the price of gold will go down. This is the time to buy up gold.

As I said, real wealth is anything that is tangible and is necessary for humans to survive.

If you are hungry, you cannot munch onto a Dollar bill. You need wheat, you need rice, or a piece of fried chicken. Getting my point?

Your proposal will spell the doom of Russian oil industry as nobody will go through the trouble of trading in gold. Note that gold is more volatile than the US dollar.

You can also say that it is the US Dollar that is volatile, not gold.

Just plot gold on the y axis and US Dollar on the x axis, and then flip the axes. (This is a common exercise in advanced statistics.)

Anyway, the growth of gold production has been more or less linear, while the Dollar printing/creating has been exponential.

The US Dollar will go bust, because, it grows exponentially. You might not like to hear what I am saying, but this f(x) = e[SUP]γx[/SUP] is going to go out of control at some point. It is not a question of if - it is a question of when.

 

[asianobserve]

That is one way to put it. The Swiss are not going to buy up a lot of gold means there is going to be a glut in gold supply in the market, hence, the price of gold will go down. This is the time to buy up gold.

As I said, real wealth is anything that is tangible and is necessary for humans to survive.

If you are hungry, you cannot munch onto a Dollar bill. You need wheat, you need rice, or a piece of fried chicken. Getting my point?

I don't know why you don;t consider dollar as real wealth for individuals. It has its economic value much like gold.

And regarding the above underlined part of your post, well, if you cannot munch Dollars then the more that you cannot munch gold!

You can also say that it is the US Dollar that is volatile, not gold.

Just plot gold on the y axis and US Dollar on the x axis, and then flip the axes. (This is a common exercise in advanced statistics.)

Anyway, the growth of gold production has been more or less linear, while the Dollar printing/creating has been exponential.

The US Dollar will go bust, because, it grows exponentially. You might not like to hear what I am saying, but this f(x) = e[SUP]γx[/SUP] is going to go out of control at some point. It is not a question of if - it is a question of when.

This one is a good graphical illustration of the relative volatility of gold against the US Dollar:

And here's another interesting article on the comparison of gold and Dollar (and Bitcoin):

Bitcoin vs. Gold vs. US Dollar

There have been a lot of comparisons lately between bitcoin and gold, most of it one-sided. Given my unique vantage point, I thought it was time attempt a more balanced view.

Liquidity. The U.S. dollar is the world's reserve currency and easily the most liquid, though there has been manipulation in foreign exchange markets. Gold comes in second, with a well-established network of regulated exchanges, though also subject to alleged manipulation like the London Fix. Bitcoin is a distant third, with mostly unregulated exchanges.

Time-tested. Gold is the undisputed king of longevity for being in use since the dawn of civilization. The first U.S. dollar was coined in 1794, but the first modern dollar began in the 1970s when it was no longer redeemable for gold, but instead became a fiat currency. Bitcoin was officially introduced in January 2009.

Medium of exchange. The U.S. dollar wins. Virtually everyone accepts the dollar in exchange for goods and services. Gold is far less accepted as a medium of exchange, but some states are figuring out ways that U.S. bullion coins can be used in everyday commerce. Being new, bitcoin has limited acceptability, but more retailers and vendors are using it, making it the fastest-growing medium of exchange to date.

Portability. Bitcoin exists only in cyberspace and thus is the most portable, with the caveat that there needs to be electricity and connectivity. Carrying 1 ounce gold bullion is easier than carrying its cash equivalent is, but eventually both become too bulky in large amounts.

Investment. Gold wins as a long-term investment, but bitcoin wins as a speculative investment. Gold is a tangible asset and is part of many balanced portfolios. Bitcoin's volatility offers speculators a chance to profit handsomely. Because the U.S. dollar serves as the world's reserve currency, its value fluctuates within a very small band. Unless someone has huge amounts of capital to invest, the returns are not usually large enough for the individual investor.

Payment systems. Bartering was likely the first payment system and was revolutionized by gold. Gold not only has intrinsic value, but through weights and measures, it standardized currency. The resulting new payment system enabled commerce on a large scale. This payment system evolved into redeemable notes, which eventually morphed into fiat currency, which the U.S. dollar reigns supreme in all forms including the electronic representation of fiat currency, namely credit cards and wire transfers. We are at the earliest stages of a potential revolution in payment systems, mainly one that exists solely in cyberspace. Leading the way are cryptocurrencies, of which bitcoin is the most recognizable.

Financial privacy. Most cash transactions are completely private, but if large sums are withdrawn, financial institutions have to document it and report to the regulators. The same goes for gold. While bitcoin does not have the same reporting requirements, all transactions are recorded on the public ledger, albeit in a pseudonymous way.

Illicit use. The amount of dollars used in illegal transactions dwarfs the amount used with both gold and bitcoin. However, deals that require a lot of physical dollars or gold become less practical because of the bulk involved. That makes bitcoin an ideal candidate for big transactions, except that large transactions could be noticed on the public ledger and traced back to its pseudonymous source. It is too early to tell to what extent bitcoin is being used for illegal activity, but only a few arrests have been made thus far.

Storage. Bitcoin is the clear winner here because it is easily backed up, although electronic dollars comes in a close second. Physical gold comes in last because its storage issues are the most complicated.

Scarcity. Gold is clearly the scarcest because there is only a limited amount and it can only be divided up practically in a finite way. Bitcoin is also scarce because only a limited number can be mined, but each coin can be divided into 8 decimal places. The U.S. dollar picks up the rear . . . can you say quantitative easing?

Stability. Even accounting for inflation and relative to other currencies, the U.S. dollar is less volatile than gold or bitcoin are, losing 97 percent of its purchasing power since 1900. Gold on the other hand has gone from $30 to almost $2,000 and now is about $1,350 in the last 40 years. Bitcoin has ranged from almost zero when it began up to $1,200 and now around $630.

Of course, this is a snapshot in time and given the speed of change, a broadly accepted cryptocurrency can change everything very quickly. But ultimately, it is not about which one is better, but what works best for each individual in each transaction. The future is likely to see a range of currencies co-existing with each other, each competing along a different margin.

Which Is Better? Dollar, Bitcoin or Gold?

 

[asianobserve]

I guess I'm wrong about munching gold....

Crazy rich!

 

[pmaitra]

I don't know why you don;t consider dollar as real wealth for individuals. It has its economic value much like gold.

Probably because I have been stuck in floods, twice in my life, and realized the true value of paper currency, food, and basic survival skills.

And regarding the above underlined part of your post, well, if you cannot munch Dollars then the more that you cannot munch gold!

Ok, you are correct. You cannot munch onto gold, just like you cannot munch onto a dollar bill.

Surely, at the time of food shortages, people will value wheat more than either gold or dollar.

However, if you want to preserve your wealth, you need something that will not multiply into abundance like the Dollar. Gold is one that is least likely to multiply into abundance. There is no guarantee that some day in the future we will not find a humongous amount of gold deposit, but the chances are very low.

We can only make a fair speculation about the future by judging the past.

So, what does the past tell us? It tells us, that gold supply will increase linearly, and Dollar supply will increase exponentially.

This one is a good graphical illustration of the relative volatility of gold against the US Dollar:

That's my point, exactly.

And here's another interesting article on the comparison of gold and Dollar (and Bitcoin):

Regarding BitCoin, frankly, I have very limited knowledge, but coming to the last highlighted part, it all boils down to one thing. Do you hold the gold as a standard and judge how the Dollar fluctuates against it, or do you do it the other way around? This highlighted portion does the latter, to suit their argument.

Judging by their own merits, which one is better suited to be a standard? One that fluctuates linearly, or one that fluctuates exponentially?

 

[asianobserve]

Probably because I have been stuck in floods, twice in my life, and realized the true value of paper currency, food, and basic survival skills.

Ok, you are correct. You cannot munch onto gold, just like you cannot munch onto a dollar bill.

Surely, at the time of food shortages, people will value wheat more than either gold or dollar.

However, if you want to preserve your wealth, you need something that will not multiply into abundance like the Dollar. Gold is one that is least likely to multiply into abundance. There is no guarantee that some day in the future we will not find a humongous amount of gold deposit, but the chances are very low.

We can only make a fair speculation about the future by judging the past.

So, what does the past tell us? It tells us, that gold supply will increase linearly, and Dollar supply will increase exponentially.


That's my point, exactly.




Regarding BitCoin, frankly, I have very limited knowledge, but coming to the last highlighted part, it all boils down to one thing. Do you hold the gold as a standard and judge how the Dollar fluctuates against it, or do you do it the other way around? This highlighted portion does the latter, to suit their argument.

Judging by their own merits, which one is better suited to be a standard? One that fluctuates linearly, or one that fluctuates exponentially?

Since it appears that gold gyrates more than Dollar then there's not much argument there which is the better standard (the one with lesser fluctuations). There are simply a lot of constraints to gold being the standard. But as an investment gold trumps Dollar all the time. So you better start buying gold when it bottoms (exactly where is the bottom we don't know)...

BTW, I don;t know what is bitcoin also.

 

[pmaitra]

Since it appears that gold gyrates more than Dollar . . .

Not to me. Hence the ellipsis for the rest of your comment.

 

[asianobserve]

Not to me. Hence the ellipsis for the rest of your comment.

You check the history of gold prices and Dollar prices. Gold really is more volatile and this is one of the most important factor being pointed out by experts against gold returning as international monetary standard. So, being more stable than gold (+ more circulated) central banks around the World stick with Dollar as the standard.

 

[sgarg]

@pmaitra, actually the argument is fiat vs gold RATHER THAN dollar vs gold.

If you argue fiat vs gold, then yes gold has its attraction for value in a crisis.

If you compare dollar to other fiat currencies, then yes, dollar has been more stable.

The dollar will hold value until US military is strong. However there are signs already that US military power has starts to taper. The situation in middle east vs ISIS may prove very challenging for USA.

 

[asianobserve]

@sgarg

You're right about fiat versus gold. The Dollar one day may be replaced by another currency as international monetary standard. But I'm certain that we will not revert back to the gold standard. That age is gone. The only people who seem to be serious in implementing it are ISIS. That's not a good sign if you ask me.

 

[sgarg]

@asianobserve, I agree with you that gold standard is not possible. However a standard based on "Assets" is possible.
The biggest issue is taking away national government right to print money; if an international agency prints money for everybody.

The EU was the experiment that was supposed to create a precursor of an international currency. However EU is under a lot of strain lately. The next two years are crucial.

 

[pmaitra]

You check the history of gold prices and Dollar prices. Gold really is more volatile and this is one of the most important factor being pointed out by experts against gold returning as international monetary standard. So, being more stable than gold (+ more circulated) central banks around the World sticks with Dollar as the standard.

Gold price? In what, Dollars? When we are comparing gold with Dollars? Why should I check the gold "price" when I can check the gold production in tons? Checking gold price is the perfect way to introduce bias into statistics.

If you want to compute the fluctuation of gold, then look at the graph of gold production in metric tons.
If you want to compute the fluctuation of the Dollar, then look at the graph of Dollar production in numbers.

Plot the two graphs on the same x-axis, with the axis representing the chronological years.

If you hold the Dollar as x-axis and the gold as y-axis, you are biasing your observation in favour of the Dollar.
If you hold gold as x-axis and the Dollar as y-axis, you are biasing your observation in favour of gold.

 

[pmaitra]

@pmaitra, actually the argument is fiat vs gold RATHER THAN dollar vs gold.

If you argue fiat vs gold, then yes gold has its attraction for value in a crisis.

If you compare dollar to other fiat currencies, then yes, dollar has been more stable.

The dollar will hold value until US military is strong. However there are signs already that US military power has starts to taper. The situation in middle east vs ISIS may prove very challenging for USA.

Yes, the argument is Fiat vs Gold.

@sgarg

You're right about fiat versus gold. The Dollar one day may be replaced by another currency as international monetary standard. But I'm certain that we will not revert back to the gold standard. That age is gone. The only people who seem to be serious in implementing it are ISIS. That's not a good sign if you ask me.

Another troll comment. Are you debating on the (de)merits of the gold standard or do you want to somehow link it to ISIS? What next? You are going to suggest that the Austrian economists like to chop off people's heads?

@asianobserve, I agree with you that gold standard is not possible. However a standard based on "Assets" is possible.
The biggest issue is taking away national government right to print money; if an international agency prints money for everybody.

The EU was the experiment that was supposed to create a precursor of an international currency. However EU is under a lot of strain lately. The next two years are crucial.

Gold was only an example. Russia is buying gold, so our discussion proceeded from there. Gold is one of the preferred choices because it is a precious metal. It does not have to be gold, but it has to be something tangible, and I have referred to this even earlier.