Save our Swiss gold!

In just three months, on November 30, the Swiss will vote in a federal referendum on the future of the country’s gold reserves.

The referendum has arisen through a popular initiative called ‘Save our Swiss Gold.’ In Switzerland, citizens can propose changes to the Swiss constitution through a mechanism called a popular initiative, even if parliament is against the proposal.

The ‘Save Our Swiss Gold’ initiative is set to highlight the important issue of sovereign gold reserves and who has possession and controls them. It may lead to an important debate about each country’s national patrimony and their gold reserves.

The ‘Save Our Swiss Gold’ initiative is proposing the following:

• rules to prevent the Swiss National Bank (SNB) selling any more of the country’s gold reserves
• to direct that the SNB must keep a minimum of 20% of its reserves in gold, and
• to require that all Swiss gold must be stored in Switzerland.

This would require repatriation of Swiss gold since some of the Swiss gold reserves are stored abroad.

The Swiss National Bank (SNB) are against the proposal but were forced last year, in reaction to the popular campaign, to reveal the storage locations of the Swiss gold.

In April 2013, Thomas Jordan, SNB President, confirmed that 70% of Switzerland’s gold is in Switzerland, 20% is at the Bank of England, and 10% is stored with the Bank of Canada, and that this mix of holdings had been in place for more than a decade.

Since the Swiss hold a total of 1,040 tonnes of gold reserves, this would mean that there are 104 tonnes of Swiss gold at the Bank of Canada and 208 tonnes in the Bank of England. Jordan’s explanation of the foreign gold storage was that it provided “adequate regional diversification and good market access”.

Since the Bank of England specialises in the custody of gold on behalf of numerous foreign central banks, it’s not surprising then that the SNB stores gold at the Bank of England.

What is surprising is that the SNB still holds gold at the Bank of Canada, since the Bank of Canada is a legacy custodian of other countries’ gold and appears to have stopped storing other nations sovereign gold in recent years.

When the Bank of Canada was asked earlier this year as to how many foreign central banks it acts as gold custodian for, it confirmed that it currently acts as gold custodian for only four foreign central banks, but that due to confidentiality, it was unable to disclose the identity of the national account holders.

However, its known from other sources that both the Netherlands and Sweden also hold some of their gold reserves at the Bank of Canada.

The Dutch central bank, De Nederlandsche Bank, has stated previously that most of its gold reserves are held at the Federal Reserve Bank in New York, the Bank of England, and the Bank of Canada, with less than 10% stored in the bank’s own headquarters in Amsterdam.

The Swedish Riksbank has also stated recently that its gold is stored in a number of foreign locations, such as the Federal Reserve, the Bank of England but also the Bank of Canada.

The identity of the 4th foreign central that stores gold at the Bank of Canada is unclear, but it may be the Bank of England or the Federal Reserve, since both banks historically held gold accounts with the Bank of Canada.

Given that Canada sold nearly all of its own substantial gold holdings a number of years ago, it seems like an anomaly that the Bank of Canada in Ottawa is still holding gold on behalf of other countries. Most countries that had held gold in Ottawa repatriated it long ago.

Citizens of Switzerland, the Netherlands and Sweden should be concerned that some of their nation’s gold is in custody with a bank that is no longer a specialist in gold custody and that did not even see fit to maintain its own gold reserves. They should also be concerned about the secrecy and lack of transparency regarding their gold.

The upcoming Swiss gold referendum will be very interesting and will highlight and focus minds on why the SNB vigorously defends the need to keep some of its gold reserves in a long forgotten vault in Ottawa.