LONDON: The Swiss franc has been a haven of relative calm in choppy currency markets in recent weeks, but a referendum next month on “saving” Switzerland’s gold reserves could change all that.

The Nov 30 vote, called by the right-wing Swiss People’s Party (SVP), is aimed at preventing the Swiss National Bank from offloading its gold holdings. It would also require the central bank to bring back gold parked abroad and hold at least 20 per cent of its assets in gold.

The SNB opposes the initiative, saying it would curb its ability to shape monetary policy. The central bank now holds less than 8pc of its assets in gold, so a “Yes” vote — which is possible but not likely, polls suggest — would probably send gold prices rocketing. The SNB would have to buy about 1,500 tonnes over the next five years.

For currency investors, though, the new requirement could generate volatility in the franc and threaten the three-year-old cap on its value against the euro, which the SNB imposed to prevent the Swiss currency from appreciating, ward off deflation and boost growth. The bank now invests the bulk of its currency reserves of around 500 billion francs in euros and about a quarter in dollars. The share of gold holdings has been coming down over the past few years as it stepped up its intervention in the currency market.

A “Yes” vote would see it more than double the quantity of gold holdings. Given the preponderance of euros in its FX reserves, that would most likely entail selling euros. The single European currency would probably drop, threatening the SNB’s 1.20 francs per euro floor, analysts said.

“Even if considered a remote tail risk, some investors might want to take out insurance, particularly if the polls ... were to suggest more support than is currently expected,” said Beat Siegenthaler, currency strategist at UBS, Zurich.

“If it (the initiative) came through, the market would immediately conclude that the (euro/Swiss franc) floor is less viable, less sustainable.” The SVP also backed an initiative against mass immigration, which proposed quotas for European Union immigrants and was backed by a narrow margin of voters in February.

The gold initiative’s committee began its campaign in the Swiss capital, Berne, on Thursday. Posters showing a red and white piggy bank — the colours of Switzerland’s flag — and the slogan “Save our Swiss gold” can already be seen around the country, including Zurich’s main railway station.

The latest polls show the initiative does not have huge support — about 45pc, which is expected to decline as the vote comes closer — and is controversial even within the SVP. It is also not prominent on investors’ radar. “The lack of attention being given to the upcoming referendum in Switzerland on the SNB’s gold holdings has similarities with the lack of attention given to the Scotland referendum until just two weeks before the vote,” said Derek Halpenny, European head of global market research at Bank of Tokyo Mitsubishi.

Published in Dawn, October 24th, 2014