Banning Swiss Gold Sales "Would Hinder Central Bank Policy"

PROPOSALS to prevent Switzerland's central bank from selling any of its gold bullion reserve are "counterproductive", Swiss National Bank chairman Thomas Jordan said Friday, criticizing a campaign by the Swiss People's Party (SVP).

Last month, the SVP obtained the 100,000 signatures needed for a referendum on proposals that include forbidding the SNB from selling any gold, repatriating any gold held in foreign vaults, and raising the proportion of gold held as part of the SNB's reserves to 20%.

"We share the objectives the initiators put forward, such as maintaining currency and price stability and ensuring both the SNB's capacity to act and its independence," Jordan told the SNB's annual general meeting.

"However the measures proposed to this effect are not suitable, in fact they are even counter-productive...these measures would, in certain situations, considerably hinder the SNB in fulfilling its monetary policy mandate and be detrimental to Switzerland."

SJordan however did say the SNB might buy gold in the future.

"As part of a good diversification of currency reserves, a certain proportion of gold can help reduce the balance sheet risk," he said.

"We have therefore never ruled out the possibility of future gold purchases."

Switzerland is currently the world's sixth-biggest holder of official gold reserves with 1040 tonnes, according to the latest World Gold Council data, just ahead of Russia and behind China's officially reported level.

Cutting its gold-weighting from 44% of reserves to less than 25% between 2000 and 2005 by selling 1300 tonnes, the SNB then saw the rise in world gold prices take gold back above 40% of its foreign-exchange holdings as the global financial crisis began in 2007.

The SNB has since grown its foreign-exchange reserves eight times over, creating Swiss Francs and selling them primarily for Euros to cap the value of its own currency in a bid to support Switzerland's export industries. 

Despite not selling any gold since 2008, the SNB has seen its gold-weighting slump to barely 10% of total reserves.

More than 70% of Switzerland's gold is vaulted within the country, Jordan said, with 20% held at the Bank of England and 10% at the Bank of Canada. The SNB had previously declined to provide such a breakdown of where Switzerland's gold was held.

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