Gold, once challenged, is running up in price. Now Switzerland is voting this week to add more to its gold reserves -- a move that could boost prices by $50 per ounce. Ron Paul and investor Marc Faber who don’t trust the current financial system think the conversation about gold should go global

Ron Paul and other gold bugs keep fingers crossed for Swiss vote that could add $50 to price of gold

Swiss voters are likely to reject a November 30 referendum to force the Swiss National Bank to hold 20% of its reserves in gold, but you can’t crush a gold bug.



Die-hard gold fans – known as ‘gold bugs’ – aren’t discouraged by the impending rejection of the Swiss people for their favorite metal.

Their faith in the yellow metal remains rock-solid, even as prices are down about 37% from gold’s all-time nominal high of around $1,920 an ounce, set in September 2011. Proponents say gold is now a bargain and plump for the yellow metal as an insurance policy against economic disasters. They point to the lack of growth in Europe and Japan and China’s growth slowdown. And they don’t buy the improvement in the US economy.

More importantly, the Swiss vote puts gold in the international spotlight again -- right where gold bugs like it.



“In my view point we always win if we can get the discussion out,” says former congressman Ron Paul, a well-known gold-standard proponent.

The “Save Our Swiss Gold” referendum would force the Swiss National Bank to raise its gold holdings to equal 20% of its monetary reserves – plus the country must repatriate all the Swiss gold held in other countries and it must never sell any of its gold. Based on current holdings, the SNB has 1,040 metric tons of gold.

This isn’t completely random. Switzerland and gold go as well together as Switzerland and chocolate. Jim Steel, metals analyst at HSBC, said as recently as 1996 the Swiss constitution required the Swiss franc to be 40% backed by gold.

Steel said if the referendum passes the SNB would likely need to buy about 1,500 metric tons of gold, which is roughly half of annual global mine production. They can buy it over five years, but he said a “yes” vote by Switzerland could quickly raise the price of gold everywhere by $50.

“This would reaffirm gold’s status in the international financial system and boost gold market sentiment,” Steel said, but a “no” vote would be unlikely to send prices much lower since that’s expected.

Not surprisingly, the SNB and the major Swiss political parties are against the measure. On Sunday SNB president Thomas Jordan said the referendum would restrict the flexibility of the bank to respond to crises.

Restricting the power of banks is the point, say the bugs.

“It is about time that the power of central banks is contained and regulated. The Swiss gold initiative, while not ideal, would be a starting point,” said Marc Faber, editor of the Gloom, Boom, Doom Report, a newsletter.

Facebook Twitter Pinterest Gold bugs believe a giant global crash will eventually make the addictive metal the only safe investment. Photograph: Comstock/Getty Images

More importantly, they still say having a gold standard, or fixing a currency’s value in terms of gold, is the only way to prevent coming hyperinflation and other ills, caused by runaway spending by global central banks.

But the gold bugs have a lot to prove. Predictions of hyperinflation to rival the Weimar Republic haven’t come true, and the global economy hasn’t imploded. Right now most central banks are concerned about deflation, not inflation.

Another obstacle: the Fed wrapped up theirs in October and could be on its way to raising interest rates next year. Higher interest rates are anathema to holding gold in a portfolio, since gold mostly just sits there – it has no yield and pays no dividend.

The complaint many gold proponents have about central banks’ action during the credit crisis is that its citizens didn’t get a say. What makes the Swiss gold vote interesting is that this ballot measure will do just that – let citizens have their say. Polls suggest Swiss citizens are saying “no” to forcing restrictions on the SNB’s monetary policy decisions. The most recent poll showed 44% would vote no, 38% would vote yes, but 15% were still undecided, as of a week ago.

Swiss voters are being influenced by government pressure to not pass it, gold bugs said, not because gold prices have fallen 37% from their highs.

“I don’t think (it’s about weaker prices). If the price had gone up, the argument would be SNB has to buy gold at an elevated level. Now the price is down they say it’s too volatile,” Faber said.

Guillermo Barba, a Mexican independent analyst and blogger at Inteligencia Financiera Global, or Global Financial Intelligence, says the negative sentiment from politicians is influencing voters.

“It’s bad propaganda’s fault. Opponents are scaring voters. Swiss bureaucrats are acting like lackeys of the American establishment,” he said.

“The current economic, financial and monetary situation in the world is terrible. Debts keep growing and growing, all major central banks including the Fed are still printing money like crazy and keeping artificially low interest rates,” Barba said. He predicts “a global mess.”



“When that happens, believe me you will want to have your gold as close to you as possible,” Barba said.

Gold proponents like Paul also say the inflation readings are bogus and that prices are rising sharply. “It depends on where you look. If you look at a government rigged CPI (consumer price index), you won’t see so much,” Paul says.

Despite the polls showing the Swiss referendum will be defeated, they’re still holding out a glimmer of hope.

“I don’t know whether you believe the polls or not, but we’ll find pretty soon,” Paul says.

Peter Thomas, senior vice president, Zaner Precious Metals, a wholesale bullion dealer, said if the vote is barely defeated, it may send a message to politicians to cut their spending. If it loses by a wide margin, then Thomas said he would rethink his view.

“If this gets trounced it would change my mind. Then I would say something has changed there, the entire dynamics have changed in the vote. Did something change internally that I’m unaware of, absolutely. But I don’t see it that way,” Thomas said, keeping the faith to the end.

