November 30, 2014. Mark that day on your calendar because it’s likely to be the day that will change the gold market forever.
The Swiss people will vote on a referendum that’ll refresh the country’s centuries-long affinity for gold and restrain paper money.
Bringing this issue to a vote has been a struggle; the Swiss government and the Swiss central bank strongly oppose the referendum.
But the people of Switzerland demanded to be heard.
Effects of a Swiss Gold Referendum
The ballot includes three key provisions:
- Prohibit the Swiss National Bank from selling any more gold.
- Repatriate all Swiss gold from overseas, particularly from the Anglo-countries of the United Kingdom, United States, and Canada.
- Require that at least 20% of the central bank’s assets be actual physical gold bullion.
Between 1999 and 2003, the Swiss central bank sold about 50% of its gold reserves. And, like the Bank of England, it sold at a rock bottom price of around $200 an ounce.
Currently, the country holds only 1,040 metric tons of gold in reserve or 7.7% of the central bank’s assets.
If the Swiss vote yes on the referendum, it’ll have an incredibly widespread effect.
For one, Switzerland will be the first developed country this century to restrict the central bank and other policymakers’ ability to print money and expand government.
However, it’s the gold market that will feel the main tremors.
Despite its loathing to do so, the Swiss National Bank will be forced to go into the physical gold market and purchase bullion.
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UBS analysts predict that the Swiss National Bank will have to buy about 1,500 metric tons of gold over that three-year period.
That is no small amount.
Ole Hansen, head commodity strategist at Saxo Bank, said, “That kind of gold buying would put what we’ve seen recently in China to shame.”
To give you some context, in 2013, China purchased 1,176.4 metric tons of gold, according to the China Gold Association.
How to Profit From a Yes
To benefit from a yay vote, investors should consider buying physical gold bullion.
Another terrific option is to purchase an exchange-traded fund (ETF) that debuted in mid-May, the Merk Gold Trust (OUNZ).
Its expense ratio is a reasonable 0.40%. Plus, when you liquidate the fund, you have the option to actually receive delivery of gold bullion (held in London for Merk) or gold coins. You won’t get that benefit from many other ETFs.
To liquidate, investors simply file a delivery application and submit it to their broker. The gold delivery itself is a non-taxable event since you’re taking delivery of an asset you already own – gold.
Merk’s first such applicant this past summer received delivery of 54 American Buffalo 24-carat gold coins.
It’s very likely, Merk will receive plenty more of these applications if the Swiss vote yes at the end of November.
And “the chase” continues,