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| Swiss Gold Referendum in Perspective Posted: 16 Nov 2014 05:54 PM PST A number of readers have asked me to comment on the Swiss Gold Referendum and what it may mean for the price of gold. Let's start with a recap of the three primary points that citizens in Switzerland will vote on. Switzerland Gold Initiative
Of course, central bankers everywhere are horrified by the idea they should have to do anything, especially hold sound assets. And in a flurry of fearmongering by the central bank and inflationists in every corner, it appears the initiative is headed towards defeat. What If? Polls aside, let's play a bit of "What If?" Specifically, what would happen to the price of gold if the referendum passes? Spanner in the Works Variant Perception says Swiss Gold Referendum: A Spanner in the Works. As polls continue to swing around ahead of the Swiss gold referendum on 30th November, we expect increased volatility in the FX and gold market.SNB Balance Sheet  SNB Reserves  Missing the Boat I am a fan of research by Variant Perception, but I believe they may have missed the boat here. Specifically, I question if gold production is much of a factor at all. That may sound strange since the referendum would require Switzerland to purchase a big percentage of all future gold mining over the course of 5 years. However, mining is not the only supply. Nearly all of the gold ever mined is available for a price. It's reasonable to exclude gold in museums, historic items, rare coins and the like, but in aggregate there may be over 170,000 tons or so of gold supply. A few charts courtesy of Nico at Sharelynx Gold will explain. Annual Gold Production  Cumulative Gold Production Since 1835  Central Bank Holdings vs Cumulative Production  Of the 2013 total (a bit higher now), central banks hold about 31,877 tons. SNB Purchases Irrelevant One must exclude central bank holdings from the amount of gold available for central banks to buy. And as stated earlier, one can subtract various other items like rare coins, but the overall numbers show that it's safe to conclude "buying 1,800 tonnes of gold over 5 years" is essentially irrelevant from a "gold available" for purchase standpoint. That said, one must also factor in gold psychology. It is entirely possible that SNB purchases could significantly alter perceptions on the desirability of holding gold. From that aspect, Variant Perception may indeed be correct on their assertion of the importance of the referendum should it indeed pass. Most Gold Analysis Wrong Many gold analysts point out gold production vs. jewelry demand. It's essentially the same miss-analysis. Jewelry demand is of little meaning in and of itself as a factor in price. Someone has to hold every ounce of gold ever produced. It's that demand for gold, all 170,000 tons of it, that determines the current price, not production. I discussed this previously in Truly Inane Bloomberg Analysis On Gold By the way, 170,000 tons of gold would fit into a cube about 67 feet wide, high, and deep. It does not take a lot of space to hold a fortune in gold. What the Future Holds I do not know the future price of gold, nor does anyone else. But I do know the fundamental drivers as well as the reasons to hold gold. And neither of those has changed. For further discussion, please see Plague of Gold Bears Now Say "Gold Unsafe at Any Price"; What's the Real Long-Term Driver for Gold? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Posted: 16 Nov 2014 11:46 AM PST Scorched Earth Policy Last week, the government in Ukraine cut off pensions benefits to residents of rebel-held areas until such time as these areas return to Ukrainian control. Yesterday, in yet another scorched-earth policy move, president Petro Poroshenko announced Ukraine Rebel Areas to Lose State Services. Ukraine's president has ordered the withdrawal of all state services, including funding for hospitals and schools, from rebel-held areas.Initial Thoughts
Point number two is happening already. I picked this up from ZeroHedge Ukrainians Line Up to Withdraw Money from a Bank in Donetsk.  That's a small line now. I suspect it soon won't be. Human Rights Violations Here's some additional details on Poroshenko's Bank Servicing Decree. "National bank of Ukraine [shall] adopt measures within one month to stop serving bank accounts, including card accounts, that belong to economic entities… and residents in the territories of anti-terror operation in Donetsk and Luhansk regions," the decree said.Expect Major Rebel Advance Reader Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian, offers these thoughts via email. Hello Mish,Major Mistake? To combat alleged terrorism, Kiev announced it can suspend article 15 of the Convention for the Protection of Human Rights and Fundamental Freedoms. Lovely. If Ukraine was looking to give Russia a humanitarian reason to invade, it just did. Is this a brilliant play by Poroshenko to trap Putin into invading, or was it just plain stupid? Only the final outcome will tell. But one thing's for certain now: Poroshenko stirred up major resentment against Kiev, not the rebels, with his decree. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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