Citi: Gold is equivalent to bitcoin, thus Swiss vote makes no sense
According to Citigroup Inc., the initiative requiring the Swiss
National Bank to hold a fixed portion of its assets in gold
makes no sense, as the
metal was the equivalent of the cryptocurrency bitcoin.
“There is no economic or financial case for a central bank
to hold any single commodity, even if this commodity had
intrinsic value,” Willem Buiter, the bank’s chief economist and
a former Bank of England policy maker, wrote in a report dated
yesterday.
“Forbidding a central bank from ever selling any gold it owns reduces the value of those gold holdings to zero.”
Gold has no intrinsic value, like bitcoin, and is costly to
produce and store, Buiter wrote.
“If the central bank is to invest in commodities, better to have a balanced portfolio of commodities or, more conveniently, a balanced portfolio of commodity ETFs or other derivatives,” he said.
In a move that SNB President Thomas Jordan calls “dangerous,” Switzerland holds a national referendum on Nov. 30 that would require the central bank to hold at least 20 percent of its assets from 8 percent in gold, all of which have to be stored in the country, and never sell any. A plurality of voters oppose the “Save Our Swiss Gold” measure, though a portion of them were still undecided, polls last week showed.
Proponents of the initiative, which would also require
repatriation of SNB bullion held in Canada and the U.K., say it
would preserve national wealth, while the government and the
central bank oppose it as they say it would hinder monetary
policy. The central bank would have to buy at least 1,733 metric
tons of gold, compared with annual production of about 2,500
tons, to meet the threshold by 2019, Citigroup said.
With 1,040 metric tons, Switzerland is already the seventh-largest holder of gold by country, International Monetary Fund data show. The additional purchases, estimated by the SNB to be about 70 billion francs ($72.8 billion), would make it the biggest after the U.S. and Germany.
Any potential Swiss purchases could trigger an 18 percent rally in prices, Bank of America Corp. estimates.
According to Morgan Stanley, the complexity of the referendum is a “substantial”
hurdle for a ‘yes’ outcome.
HSBC Securities (USA) Inc. said in their Nov 24 report that if ‘yes’ is good for gold prices, ‘no’ would be neutral.
