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Things That Make You Go Hmmm... Like The Swiss Gold Status Quo Showdown

Authored by Grant Williams, via Mauldin Economics,

About 18 months ago, I had a very pleasant chat with a gentleman by the name of Luzi Stamm.

You may detect some measure of surprise in my words, and the reason for that is quite simple: Luzi Stamm is a politician; and, as regular readers will know, I am no fan of that particular class.

But Herr Stamm was different.

An MP representing the Swiss People’s Party, Stamm was spearheading a federal popular initiative which needed 100,000 signatures in order to comply with the Swiss parliamentary system’s rigid framework regarding referendums. (OK all you “referenda” people out there, I know, OK? But I’m going with “referendums,” so pipe down).

That initiative was one of three being pursued: firstly, a motion to limit immigration into Switzerland to 0.2% per year; secondly, a drive to abolish the flat tax system and for resident, nonworking foreigners to be taxed based instead on their income and their assets; and thirdly, Stamm’s initiative... Well, we’ll get to that shortly; but before we do, we need to understand a little about how Swiss democracy works.

(Wikipedia): Switzerland’s voting system is unique among modern democratic nations in that Switzerland practices direct democracy (also called semi-direct democracy), in which any citizen may challenge any law approved by the parliament or, at any time, propose a modification of the federal Constitution. In addition, in most cantons all votes are cast using paper ballots that are manually counted. At the federal level, voting can be organised for:

 

Elections (election of the Federal Assembly)

 

Mandatory referendums (votation on a modification of the constitution made by the Federal Assembly)

 

Optional referendums (referendum on a law accepted by the Federal Assembly and that collected 50,000 signatures of opponents)

 

Federal popular initiatives (votation on a modification of the constitution made by citizens and that collected 100,000 signatures of supporters)

 

 Approximately four times a year, voting occurs over various issues; these include both referendums, where policies are directly voted on by people, and elections, where the populace votes for officials. Federal, cantonal and municipal issues are polled simultaneously, and the majority of people cast their votes by mail. Between January 1995 and June 2005, Swiss citizens voted 31 times, to answer 103 questions (during the same period, French citizens participated in only two referendums)

 

In Swiss law, any popular initiative which achieves the milestone of 100,000 signatures MUST be put to the citizens of the country as a referendum, and in a country of just 8,061,516 people (according to the July 2014 count — never let it be said that the Swiss aren’t precise), that’s a pretty big ask; but the Swiss do love their votes — so much so that, since 1798, there has been a seemingly never-ending procession of issues which the Swiss people have been entrusted by their leaders to decide:

 

In 2014 alone there have already been three referendums concerning such diverse issues as the minimum wage, abortion, and the financing and development of railway infrastructure. (For those of you just dying to know the outcomes, the abortion referendum, which would have dropped abortion coverage from public health insurance, failed by a large margin, with about 70% of participating voters rejecting the proposal. The railway financing was approved by 62% of the voters, and the motion that would have given Switzerland the highest minimum wage in the world — 22 francs ($23.29) an hour — was soundly defeated, with 76% of the voters saying “nein.”)

One wonders what the outcome would be of a similar motion to hike the minimum wage to such lofty heights in the US. Or in Great Britain.

The bottom line? The Swiss just think (and, importantly, vote) differently.

But back to Luzi Stamm and the SPP initiative.

Immigration and taxes aren’t uppermost in Stamm’s mind. What he IS concerned about is gold.

When we spoke on the telephone last year, Stamm explained to me that he hadn’t really properly understood the part gold played in the Swiss monetary equation until he’d had it explained to him by a friend more versed in finance (Stamm is a lawyer by background but with an economics degree from the University of Zurich); but once he understood how it all worked, Stamm realized that the changes to Swiss monetary prudence which had occurred in just a few short years were (a) potentially disastrous for the country and (b) not remotely understood by his countrymen (and women).

So Stamm decided he ought to do something about it.

The Swiss had accumulated a significant gold reserve the old-fashioned way — through seemingly constant current account surpluses — over many decades, but in May 1992 they finally joined the IMF.

Once THAT little genie was unleashed, things began to change.

In November of 1996, the Swiss Federal Council issued a draft for a new Federal Constitution, and contained within that draft was an amended position on monetary policy (article 89, in case you’re wondering) which severed the Swiss franc’s link to gold and reaffirmed the SNB’s constitutional independence:

Money and currency are a federal matter. The Confederation shall have the exclusive right to coin money and issue banknotes.

 

As an independent central bank, the Swiss National Bank shall follow a monetary policy which serves the general interest of the country; it shall be administered with the cooperation and under the supervision of the Confederation.

 

The Swiss National Bank shall create sufficient monetary reserves from its profits.

 

 At least two-thirds of the net profits of the Swiss National Bank shall be credited to the Cantons.

Spiffy.

In April 1999, the revision of the Federal Constitution was approved (how else than through a referendum?), and it came into effect on January 1, 2000.

Oh... sorry... I almost forgot to mention that in September 1999 — after the revision had been adopted but before it had been officially enacted — the SNB became one of the signatories to the Washington Agreement on Gold Sales, meaning that all that lovely Swiss gold which had been sitting there, steadily accumulating and making the Swiss franc one of the last remaining “hard” currencies on the planet, was eligible to be sold.

A single line in the Swiss National Bank’s own history of monetary policy identifies the beginning of the demise of one of the world’s great currencies:

On 2 May, the SNB begins selling gold holdings no longer required for monetary policy purposes.

And there you have it. “No longer required for monetary policy purposes.”

That’s what happens when you finally embrace the beauty of fiat. Not only do you get to sell gold, you get to call the proceeds of those sales “profits.”

The absurdity borders on breathtaking.

At the beginning of 2000, the Swiss National Bank (SNB) held roughly 2,600 tonnes of gold in its reserves. That equated to approximately 8% of total global central bank gold reserves. After the revised constitution became law, the Washington Agreement took over and... Bingo!:

 

Swiss gold reserves were plundered gently sold in line with the Washington Agreement, and the “profits” (the language used by the SNB themselves) were distributed amongst the Swiss cantons; so everybody in a position to raise questions ended up getting a nice, fat slug of “profit” to keep them quiet help their Canton pay the bills.

Now, does anyone notice anything particular about the period when the Swiss gold sales were at their highest? Yessss... that’s right (as with the UK’s sales), the bulk of Swiss sales were made at the lows in the gold price (between $300 and $500 per ounce — blue shaded area).

To look at it another way, the Swiss National Bank went from being one of the soundest central banking institutions on Earth to just another in the morass of apologist financial institutions that lost sight of their mandates while grasping for a Keynesian free lunch, egged on by a new breed of politicians who knew nothing of the principles of sound money or, if they did, were happy to put them to the back of their minds as they extended their hands.

Sadly, as went the soundness of the SNB, so went the soundness of the Swiss franc itself.

 

As you can see from the chart above, the SNB has, over the last two decades, oustripped its nearest rival in gold sales by a factor of three.

Adding to the fun and games was the decision in September 2011, at the height of the euro crisis, to peg the Swiss franc to the euro (something that obviously couldn’t have been done prior to breaking the gold peg) in order to stop it appreciating.

How? Why through literally unlimited printing of Swiss francs to stop the exchange rate breaking 1.20.

At the time, the SNB was unequivocal:

The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development. The Swiss National Bank is therefore aiming for a substantial and sustained weakening of the Swiss franc.

All this talk of “massive overvaluation of the Swiss franc” is utter bollocks a little disingenuous. (“Surely not!” I hear you cry.)

Between 1970 and 2008, the strength of the Swiss franc was legendary. During that time, it appreciated by 330% against the US dollar and by 57% versus the Deutsche mark/euro. Consequently, a strong currency went hand-in-hand with a strong economy. How awful.

The problem was NOT in the OVERvaluation of the Swiss franc, as the SNB would have you believe, but rather in the UNDERvaluation of the competition; and the only thing the SNB could do was to join in the great devaluation race.

That move weakened the currency by about 9% in 15 minutes, and the immediate effect on the SNB’s balance sheet was obvious:

(Mitsui Global Precious Metals): As late as the end of 2009, the SNB held 38.1 billion CHF in gold out of total reserves of 207.3 billion CHF, with gold representing a touch over 18 per cent of all its reserves. At the end of July 2014, it owned 39.1 billion Swiss Francs in gold (or 1,040 tonnes) from total reserves of 517.3 billion CHF, meaning that roughly 7.6 per cent of its assets were in the form of the yellow metal.

Note that the rise in value of Swiss gold by CHF 1 billion wasn’t enough to counter the destructive nature of overt and unchecked money printing.

 

 

Like the Fed, the BoJ, and the BoE before them, the SNB became, at a stroke, another previously sound institution that unhesitatingly ripped its balance sheet to shreds:

 

Since 2009, the SNB has quintupled its balance sheet, making it (on a relative basis) the most prolific of the central bank printing machines. Not bad for the world’s 96th-largest nation.

Since the EUR peg was instituted just three years ago, the SNB’s balance sheet has more than doubled.

So, with the Swiss franc’s soundness under attack from within its own borders, Luzi Stamm decided to try to use the Swiss love for referendums and the rigidity of the Swiss political process to try to reinstate the Swiss franc as a sound currency.

To that end, Stamm proposed the Swiss Gold Initiative (“Save Our Swiss Gold”).

Funnily enough, the proposal was rejected by lawmakers, but Stamm gathered three like-minded MPs and, more importantly, enough signatures on his petition (100,000) to ensure that a referendum on the proposal would take place; and that vote will happen on November 30th — six weeks from now.

Stamm pulled off a masterstroke in securing the involvement in the Swiss Gold Initiative of Egon von Greyerz who, along with being one of the most highly respected figures in the gold industry, happens to be one of the world’s nicest human beings.

We’ll get to Egon’s involvement shortly, but first let’s take a look at the motions that make up the Swiss Gold Initiative, which are threefold:

1. The gold of the Swiss National Bank must be stored physically in Switzerland.

 

2. The Swiss National Bank does not have the right to sell its gold reserves.

 

3. The Swiss National Bank must hold at least 20% of its total assets in gold.

(NB. Before we get to the part of this story where the SNB tell us how big a nightmare it would be to force them to hold 20% of their reserves in gold (come on, you KNEW that was coming), I’d point you back to the chart on page 8. Remember? The one that showed the Swiss held 18% of their reserves in gold just five short years ago?)

Addressing the motions in order, let’s begin with number 1, that all Swiss gold be physically stored in Switzerland.

Switzerland has made its name over centuries as being one of the safest places on the planet to store gold. That reputation has been good enough to convince people from all over the world to entrust their gold to the Swiss for safe-keeping. However, like many other central banks, the SNB stores a certain proportion of its gold overseas. How much? We don’t know. Where exactly is it held? We have no idea (other than “in the UK & Canada”). In fact, when the finance minister was asked, in parliament, where Switzerland’s gold was stored, his answer was something of a head scratcher:

Where this gold exactly is stored, I cannot say, because I do not know, because I do not need to know, and because I do not want to know.

Riiiight... Call me old-fashioned, but if I were a Swiss national I’d want a better answer than that.

Anyway, the spurious reason commonly given by central bankers for storing gold in places like London or New York is to have it “close to the marketplace should sales be necessary.” Obviously, if the Swiss are forbidden from selling their gold and are bound to hold a minimum of 20% of their gold reserves in gold, that argument becomes moot anyway, so shipping it home should be nice and straightforward. Just find out where “in the UK and Canada” it is (I’m sure they gave you a receipt), call them up, and tell them you’d like it back. Now that you’ve sold more than 50% of the gold, it shouldn’t take too long to physically move the rest home. Surely?

Number 2 on the initiative’s wishlist is that the SNB be prohibited from selling their gold reserves. Now, THAT might be a problem for the SNB in times to come in the “ordinary conduct of monetary policy,” but as we are some ways away from a world in which “ordinary” features in any way, shape, or form where monetary policy is concerned, I don’t think this prohibition is going to matter much. However, if you think this initiative isn’t being taken seriously, you just have to look at an excerpt from a speech given by the governor of the SNB, Thomas Jordan, a matter of days after the Swiss Gold Initiative achieved the 100,000 signatures it required to qualify as a referendum.

If you lean in real close, you can smell the fear:

(Thomas Jordan, speech to general meeting of shareholders of the Swiss National Bank, 26 April 2013): The SNB does not generally comment on any political initiatives. However, the gold initiative has a very direct impact on the SNB’s capacity to act. This is why we are taking the opportunity today to present our viewpoint for the first time on the demands of the initiative.

 

The initiators see a high level of gold reserves as a guarantee for currency stability. They fear that the Swiss franc will decline in value and that price stability will be threatened if a large proportion of the balance sheet does not consist of gold holdings. They are also concerned that the SNB’s gold reserves held abroad are not secure and will not be accessible in critical situations.

 

 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. However, the measures proposed to this effect are not suitable; in fact, they are even counterproductive. Instead, they are based on misunderstandings about the importance of gold in monetary policy and would compromise the SNB’s capacity to act in pursuing its monetary policy, which would run counter to the objectives envisaged. In other words, these measures would, in certain situations, considerably hinder the SNB in fulfilling its monetary policy mandate and be detrimental to Switzerland. We therefore consider it our duty to point out the serious disadvantages of the initiative already at an early stage.

Thomas, if I may?

The SNB’s desire to “maintain currency and price stability” can be summed up by this chart, which will be all too familiar to those who have studied the fiat currencies of the world, but it obviously needs trotting out one more time:

 

 

As for the SNB’s capacity to act in “pursuing monetary policy,” what the Gold Initiative will do is effectively stop them from printing unlimited amounts of Swiss francs in order to keep the once-mighty Swiss franc pegged to a potentially obsolete currency like the euro.

Now, I am simplifying here in the interest of expediency, and I am well aware of the restrictions that any kind of gold standard places on a central bank’s operational capability, but it’s important to understand that the Swiss franc functioned perfectly well as a partially gold-backed currency up until 1999, and the desire of the SNB to have carte blanche to debase the Swiss franc at will more flexibility in their monetary policy comes down to their wanting to employ the same tactics being resorted to by the world’s other major central banks.

If you can’t beat ’em, join ’em.

All of which leads us to perhaps the most fascinating part of the Swiss Gold Initiative: the motion to ensure that the SNB immediately acquires enough gold to back 20% of its reserves (a threshold which it must then maintain as a minimum — at a level, you know, about where they were in 2009).

Now, the numbers around this little piece of the puzzle are interesting.

In order to reach the 20% threshold, the SNB has two options open to them: they can either reduce the size of their balance sheet or buy gold.

In life, there are many limbs out onto which one should never venture, but I’m prepared to dance out onto this one like Billy Elliot:

The SNB will NOT reduce the size of their balance sheet in order to meet the 20% mandate should the motion be passed.

There. Quote me on that.

And we all know what THAT leaves, don’t we boys and girls?

Yes, in order to meet the regulations should the Gold Initiative pass, the SNB will need to buy 1,700 tons of gold at the market (assuming, of course, that they don’t expand their balance sheet further in the meantime — something that, with the increasingly weak euro, is doubtful in the extreme). That equates to roughly $70 billion or CHF 67 billion.

And we are talking physical gold. Not futures contracts or complex derivatives but the metal itself.

Put another way, 1,700 tons of gold is roughly 70% of total annual gold production.

 

Now, the SNB will have five years in which to reach the required 20% limit, but they will essentially need to get started immediately, because with the floor such a big buyer will put under the price and the constant expansion of their balance sheet due to that pesky euro peg, the longer they wait, the more gold they will have to buy and the less they will get for their money.

Catch Zweiundzwanzig.

How’s your attention? Grabbed yet?

OK, good.

Until now, the whole idea of this hokey little referendum has been written off as inconsequential and largely ignored by all but the most buggy of gold bugs. It was written off when Luzi Stamm announced it. It was written off when they needed to get 100,000 signatures; and, amazingly, it was ignored even once they HAD reached the magic number; but recently a number of things have happened which are making some serious waves and causing considerable unease amongst the Swiss banking establishment.

While in San Antonio recently, I was fortunate enough to chat with a displaced fellow Brit who came to meet me at the Casey Summit to talk about the Swiss Gold Initiative, and what he had to say fascinated me.

The gentleman explained a few of the nuances surrounding the framework within which the vote on the Gold Initiative will be conducted, and as I listened I realised that this little vote could potentially become a very big vote indeed.

Firstly, he noted the fact that there isn’t any “no” campaign running against the initiative. Not one that actively campaigns, at least. There will be no billboards, posters, or leaflets distributed making the case for a vote against the SGI. Thus, it’s basically up to the organizers of the initiative to get the word out and educate the Swiss public about the importance of what they’re trying to do in a vacuum.

That, of course, requires money.

During these campaigns, there is no TV or radio advertising allowed, only an old-fashioned leaflet/poster/billboard campaign (how very Swiss), which is an expensive operation to have to finance.

However, a curious quirk of Swiss politics allows anybody (and I mean ANYBODY) to make a donation to campaigns such as these from anywhere in the world — with 100% anonymity.

As our conversation continued, I learned that the initiative plans to blanket the country with billboards, posters, and leaflets and to conduct a comprehensive social media campaign to engage the vital 18-44 demographic — a strategy completely new to the somewhat antiquated world of Swiss politics.

All this felt like it was going to be rather expensive for such a small campaign, but with the donation system certainly helping their chances, Stamm & friends embarked upon their fundraising venture; and, as I mentioned previously, their first move was a masterstroke.

Over the past several years, I have been extremely fortunate, through regular encounters around the world, to have found myself in a position to call Egon von Greyerz my friend.

Egon is a wonderful man with a keen intellect, a great sense of humour, and a code of ethics which is utterly above reproach. He is also now the “face” of the Swiss Gold Initiative to the gold industry.

I recently chatted with Egon about the progress being made, and what he had to say was fascinating:

Switzerland now has the opportunity to be the first country in the world with official partial gold backing of its currency. A currency backed by gold means the government and the central bank cannot manipulate the currency at will and print worthless pieces of paper that they call money. This would stabilise the real value or purchasing power of the Swiss franc. A currency with stable purchasing power leads to stable prices and promotes savings and investment rather than spending and credit. Officially Switzerland, like most countries, has a low inflation rate; but for the average person, consumer prices in the shops for food and other necessities continue to rise.

 

Even though the official Swiss inflation is low, there is massive inflation in some sectors like housing and financial assets. The money printing in Switzerland combined with artificially low interest rates have led to a major housing bubble.

 

Swiss housing prices are now unaffordable for most Swiss and in relation to income prices are now in an unsustainable bubble. An increase of Swiss mortgage rates from current 1-2% per annum to a more normal 4% could lead to major mortgage defaults and a housing collapse.

 

The Swiss have a history [of] putting some of their savings into the Vreneli, the Swiss 20 franc gold coin. In recent times, as spending on credit rather than savings has been the norm, the Swiss have bought less gold, but in spite of that they have more affinity with gold than most Western nations. The Swiss gold industry is also very significant, since Swiss refiners produce nearly 70% of the world’s gold bars.

 

The most prolific savers in gold are of course the Indians, mainly by buying jewelry. But in the last few years China has been the biggest buyer of gold. There is a constant flow of gold going from the West to the East. This has created a shortage of gold in the West.

 

The government and SNB will be very concerned about the poll results and will intensify their propaganda concerning how bad this would be for Switzerland. But as you know, the Swiss are an independent lot and don’t like the government telling them what to do. It will be extremely interesting.

Interesting indeed.

The poll that Egon refers to is the next of those things that are making waves.

The official press launch of the SGI campaign was held this past week, with Luzi and his committee and Egon speaking to the Swiss media; but AHEAD of that launch, a poll was conducted in 20 Minutes, a popular German-language free daily newspaper published both in print and online.

The question asked was simple: “How will you vote in the upcoming Save Our Swiss Gold referendum?”

The results were a surprise to just about everybody — including Luzi and Egon.

A total of 13,397 people were polled from all across Switzerland on October 15, and the poll clearly demonstrated that already — without any campaigning — there is a solid block of voters inclined to vote FOR the initiative:

 

With the establishment being unable to actively campaign AGAINST the Initiative, all has been quiet for many months (which is why you probably haven’t heard anything about the SGI); but with the dawning awareness that this little campaign might actually grow some legs, a few members of that establishment have been getting a little antsy.

Firstly, last year when the proposal was tabled in parliament, we had this reaction:

(Centralbanking.com): Switzerland’s upper house gave the thumbs down to a controversial proposal yesterday that would force the Swiss National Bank (SNB) to more than double its gold holdings by requiring the bank to permanently hold 20% of its assets in bullion — but the rule could still ultimately become law in a popular referendum later this year.

 

The “gold initiative”, the brainchild of the right-wing Swiss People’s Party (SVP), which also calls for SNB gold to be repatriated to Switzerland — much of it is currently stored in London, New York, and Canada — is slated for a public referendum after the SVP secured 100,000 signatures in support of the measures last year.

 

Switzerland’s political establishment, however, remains vehemently opposed, fearing a gold quota would severely undermine the SNB’s ability to carry out its mandate — and their case has been helped by the poor performance of the metal over the past year.

 

Speaking before the upper house yesterday, finance minister Eveline Widmer-Schlumpf warned the “credibility of monetary policy” would be “greatly impaired” if the floor was introduced. She also described gold as “among the most volatile” and “riskiest investments” on the central bank’s books. The SNB took a $16 billion loss on its gold holdings last year as prices fell 30% — contributing significantly to a Sfr9.1 billion loss on total assets, as shown by data released by the bank today.

 

SNB governor Thomas Jordan has also slammed the idea, arguing it would severely restrain the SNB’s policy choices by restricting the flexibility of its balance sheet. In a worst-case scenario, he warned last April, the assets side of the SNB’s balance sheet would over time be largely comprised of unsellable gold, which could force the bank to turn to money creation to finance its expenses.

 

“For the SNB to fulfil its mandate at all times, its capacity to act in monetary policy matters must not be compromised by rigid rules on the composition of its balance sheet,” Jordan stressed.

It’s laughable, actually.

No word from the finance minister on the huge potential gains which were foregone when the SNB sold their gold at the lows (gains which, at today’s prices, would have been in the region of CHF 27.5 bn). No. We won’t mention those. Nor will we even bother to go anywhere near Jordan’s fears that the SNB might be “forced” to (GASP!) “turn to money creation to finance its expenses.

No. We’ll leave those well alone and instead visit a “dossier” opened by the SNB on its website a couple of weeks ago as the realization dawned upon them that the SGI won’t just “go away” if they don’t talk about it:

(Centralbanking.com): ...Now, with less than two months until the vote, the central bank is intensifying its communication. It opened a “dossier” on its website yesterday where it will post materials outlining why it “reject[s] the initiative”.

 

“Monetary policy transactions directly change our balance sheet. Restrictions on the composition of the balance sheet therefore restrict our monetary policy options,” [SNB Vice-chairman Jean-Pierre] Danthine explained.

 

“A telling example is our decision to implement the exchange rate floor vis-à-vis the euro... with the initiative’s legal limitation in place, we would have been forced during our defence of the minimum exchange rate not only to buy euros but also to buy gold in large quantities.

 

 “Our defence of the minimum exchange rate would thus have involved huge costs, which would almost certainly have caused foreign exchange markets to doubt our resolve to enforce the rate by all means.”

Sometimes I think these people are completely delusional.

So, let me get this straight: gold is a relic which restricts your ability to do such vital things as... oh, I dunno, promise to print unlimited amounts of your currency in order to peg it to another, failing currency and thereby debase it by 9% in 15 minutes? Or it might mean the market doesn’t have complete faith that you might be completely relied upon to do really smart things like that?

Disaster!

Somebody. Please? Make it stop.

The Swiss establishment has been reliant upon the public’s ignorance in these matters, but now they are up against a formidable opponent in Egon von Greyerz. Not only that, but they can clearly see that, as elsewhere around the world, the public is fast becoming disenchanted with the status quo; and that is potentially very dangerous for these people.

What is important to understand here is that if the initiative passes it will be part of the Swiss constitution IMMEDIATELY — not in two years, as many blogs and websites are suggesting. This means that the government and parliament cannot touch it. Only another referendum can change it. This is proper democracy for you.

The closer we get to the vote on November 30, the bigger this story is going to become, and the bigger it becomes, the higher the chance that the yes vote wins.

Should that happen, it will undoubtedly set off alarm bells throughout the gold market, as yet more physical gold will need to be repatriated and another sizeable, price-insensitive buyer will enter the marketplace.

Curiously, as awareness of this initiative has risen in the last month or so, two strange things have happened in the gold markets, one in the murky world of central bank gold operations, the other in the equally murky world of China’s Shanghai Gold Exchange.

Firstly, the Russian central bank (which, unlike its Western counterparts, happily publishes its dealings in the gold market for the entire world to see) made its biggest monthly purchase in 15 years in September when they purchased 1.2 million ounces:

Source: www.sharelynx.com

While in China, withdrawals from the Shanghai Gold Exchange suddenly spiked to 68.4 tonnes (the third-highest level on record):

Do either of these moves have anything to do with pre-positioning ahead of the Swiss referendum outcome? I have absolutely no idea.

What I DO know, though, is this:

Most people have written the SGI off as a sideshow of little consequence. Most people assume that it won’t get passed. Most people assume that, if it IS passed, it won’t make any real waves.

I think most people are wrong.

I think there is a VERY good chance the motion will get passed; and I think that, when it does, it will spark calls for similar actions in neighbouring countries such as Austria, for example, or maybe the Netherlands.

I also think that the physical gold market is far too tight to be able to handle any sudden widespread demand for large-scale repatriations of gold.

This story is going to be getting more attention in the coming weeks. Already, Rick Santelli has spoken about it on CNBC, and so has Eric King in a tremendous interview (which you can listen to here), and this is only the beginning. More polls will follow, as will increasingly desperate rhetoric from the SNB.

Amidst it all, calm and confident will be my friend Egon and the tenacious Herr Stamm.

Don’t bet against them.

*  *  *

The official website for the Swiss Gold Initiative is here:

And if you’d like to make a completely anonymous donation in any amount to help the initiative fund their campaign to restore sound money at the heart of Europe, then click HERE.

At the top of the page, you’ll see a button marked “Donate.” (I’ve done it and it’s easy — oops, there goes my anonymity.)

Oftentimes, it’s movements like the Swiss Gold Initiative that cause ripples which change things for the better, and I have a feeling that the time is ripe for an unexpected outcome.

Either way, I think you’ll be seeing a lot more of this little piggy in the days and weeks to come.

 

*******

OK ... well, that went on longer than I’d planned, I’m afraid, but I think it’s an important story for you to keep an eye on. It’s not, however, the only one.

Greece is back and it’s the most unwelcome return of that word since Michelle Pfeiffer and Adrian Zmed took over from Olivia Newton-John and John Travolta. This is a movie we’ve seen before, and last time it had an extremely unhappy ending.

The German economy is starting to stall, which is leading to a few calls for “something” to be done (OK); we look at the run-up to what is turning into a very closely fought election in Brazil (the results should be coming in as this week’s TTMYGH hits your inbox); and Jim Chanos shares a lesson he learned in 1987 that has stood him in good stead ever since.

Cliff Asness brilliantly takes Paul Krugman to task over inflation (the line about the skunk and the tennis racket is worth the price of admission on its own); Liam Halligan explains why panic moneyprinting cannot save the euro; and in China we find that the housing market is starting to cause the kind of concern reserved for times when prices in 69 of 70 cities drop simultaneously.

Pater Tenebrarum answers the question of whether Ebola is a black swan; the brilliant Worth Wray lays out “A Scary Story for Emerging Markets” just in time for Halloween; and we have charts of Chinese ghost towns and Chinese red tape as well as an interview with Egon von Greyerz about the SGI, a statement read to the Swiss parliament by MP Lukas Reimann, and an word on the madness of today’s markets by Bill Fleckenstein.

*  *  *

Read the full Grant Williams letter here...