Citi Sees Gold as Bitcoin Says Swiss Vote Makes No Sense
The initiative requiring the Swiss National Bank to hold a fixed portion of its assets in gold makes no sense, according to Citigroup Inc., which said the metal was the equivalent of the virtual currency 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.”
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.
Gold Reserves
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.
Gold for immediate delivery fell 0.2 percent to $1,195.28 by 10:09 a.m. in London, down 0.5 percent this year after slumping 28 percent in 2013, according to Bloomberg generic pricing. Any potential Swiss purchases could trigger an 18 percent rally in prices, Bank of America Corp. estimates.
The complexity of the referendum is a “substantial” hurdle for a ‘yes’ outcome, according to Morgan Stanley. While ‘yes’ is good for gold prices, ‘no’ would be neutral, HSBC Securities (USA) Inc. said in a Nov. 24 report.
Like bitcoin, gold has no intrinsic value 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.
Source: Bloomberg – Citi Sees Gold as Bitcoin Says Swiss Vote Makes No Sense
