Close

Don't Bet Against the Swiss National Bank, Says Natixis (GLD)

November 20, 2014 3:44 PM EST
Get Alerts GLD Hot Sheet
Price: $200.03 --0%

Rating Summary:
    0 Buy, 0 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 8 | Down: 5 | New: 36
Join SI Premium – FREE

Natixis analysts Bernard Dahdah and Johannes Gareis warned investors not to be bet against the Swiss National Bank. Comments related to a November 30 referendum that would have the SNB raise gold assets to 20% (8% currently). The initiative would also require gold to be stored on Swiss soil. Yesterday a poll showed the initiative is unlikely to be successful.

"In our view, the likelihood of a 'yes' vote seems to be low," said Dahdah. ". . . . even a positive outcome of the referendum is not likely to have a huge effect on the gold market and does not call the SNB’s cap on the franc into question."

While some argue a yes vote would undermine the EUR/CHF floor, Natixis disagrees.

"Without doubt, under the gold initiative, it would be more difficult for the SNB to defend the cap," continued the analyst. "An important reason for the success of the cap, however, is the SNB’s credibility that it would engage in unlimited foreign currency intervention should the cap become under attack. Investors might take this dilemma for the SNB as an invitation to bet against the SNB, which would become self-fulfilling. We doubt that such a scenario is likely. In fact, absent any inflation pressure, the exchange rate ceiling continues a necessary pillar of the SNB’s monetary policy framework as renewed exchange rate pressure would quickly translate into significant deflation risks (chart 6). It is therefore a priority for the SNB to defend the cap, if necessary."

"Ultimately, we think that it would not be difficult for the SNB to raise the gold ratio to 20% all else being equal. 1,500 tonnes would correspond to around 30% of annual global mine production and recycling. Yet, if purchases were distributed over five years, the SNB would have to buy approximately 1 tonne of gold per day. This is a very small portion of the normal daily turnover in the gold market (conservative estimate: <0.1%) and would hardly have an impact on gold prices," he added.

SPDR Gold Shares ETF (NYSE: GLD) traded higher by 1.2% intraday on Thursday.



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

Analyst Comments, Commodities, ETFs, Forex