Trouble is coming, trouble the central
banks will flunk. Again...
SHORT TERM the failure of the Swiss gold initiative means nothing for gold
prices..
The market had already discounted any hope of a win,
as we'd already noted to Daily Update readers. Monday
morning's speculative push lower, knocking first $10 then $20 off the Dollar
price, was quickly erased. And how!
What's more, the strength of the 'No' vote...fully 76% of the Swiss electorate...says that public confidence in central bankers is solid. That's
a big reversal from the height of the recent bull market in gold peaking in
2011-2012.
But further ahead, last Sunday's result suggests
that central bankers face serious trouble. The kind of trouble they're
unlikely to beat. By the time the general public rumble they're failure, gold
will very likely be making headlines for rising...rather than drawing mockery...once
more.
How so? The failed Swiss gold initiative, in demanding
20% of assets be held in gold, would have curbed the SNB's ability to print
money to devalue the Franc. So its resounding defeat says people now find QE
perfectly acceptable, and that points to a deepening deflationary
psychology.
Because with QE winning on Sunday, voters who've
bought the line that QE helps defeat deflation and economic depression must
think that's what is about to hit them. So as the example of Japan shows,
ever-more QE cash is needed to boost asset prices and try to stoke inflation.
Yet once that policy finally succeeds, then today's confidence in
central-bank policy will look badly misplaced. Because a nice, gentle uptick
in inflation is not what will follow.
Central banks failed to predict or control the
financial collapse of 2008. They're now failing to get inflation of 2.0% per
year, their standard "target" rate. The longer this goes on, the
more "unconventional" QE they will apply.
What makes anyone think the central banks understand
what they're doing or will get ahead of the outcome?
As it is, the Swiss National Bank still has plenty
of gold. Its 1,040 tonnes work out to a huge 129 grams for every man, woman
and child in the country. That's a heavier gold-weighting than any other
nation on earth according to our maths here at BullionVault today.
But then, the Swiss population might be grateful for
such large per capita gold reserves. Because thanks to Switzerland's QE
policy...creating Francs to sell for Euro and Dollar assets, depressing the
value of CHF on the currency market to try and boost exports and prices...the
central bank's total assets per head are also the largest in the world right
now.
Worth fully $62,800 per head of population, the
SNB's per capita assets, as our new chart shows, are more than 15 times what
China's People Bank holds per head...eight times what the Eurozone central
banks hold...and over 3 times more than even the Bank of Japan's QE-crazed
balancesheet.
Swiss voters seem perfectly happy with this. Or
rather, they're oblivious. Quantitative easing is just fine. Because
deflation is starting to set like concrete. Sure, a handful of Swiss citizens
did choose to buy gold ahead of the vote, using BullionVault as we noted
to CNBC last week.
We think they were right to do so. Of course we do!
But not just because it's our business, and certainly not because we expected
the price to gap higher at the start of Asian trade Monday following a
"Yes" vote.
No, we think they were right to buy gold because the
Swiss gold vote was sure to fail.
Look, if your government...running sound, sensible
fiscal and monetary policy...adds physical gold to its assets, you would have
less need of financial insurance for your own money.
But Swiss policy, like its public opinion, suggests
quite the opposite. The gold initiative met a resounding 'no'. That leaves
Swiss gold reserves slipping down the world table of national holdings as
other countries buy more. It also leaves the Swiss National Bank's
money-printing QE scheme to continue unfettered...actively seeking to devalue
the Franc as the SNB flirts with the new absurdity of negative interest
rates.
If that sounds similar to your own currency's
outlook, you might want to buy gold for your own personal reserves too. But
of course, sitting here at BullionVault...the largest, lowest-cost provider
of physical gold and silver ownership to private investors...we would say
that, wouldn't we?
