Swiss to vote on Gold ReservesThought this might be of interest with possible ramifications on Silver pricing in the future: Markets show jitters ahead of Swiss gold vote (Published: Oct 29, 2014 3:23 a.m. ET 17 8 7 5 By CHIARA ALBANESE) Gold and currencies markets are starting to show their first nerves ahead of a referendum in Switzerland that could potentially force the country's central bank to buy thousands of metric tons of gold and never sell it, complicating its so far credible policies to hold down the franc. A 'yes' result in the so-called "Save Our Swiss Gold" vote Nov. 30 wouldn't be the end of the matter, with the controversial measure facing several hurdles before it could ever be passed into law. Still, a ruling in favor of the motion would force the Swiss National Bank to hold some 20% of its about $547 billion assets in the precious metal, returning to the weighting it last held in gold in 2008. This harks back to a time when Switzerland held a dominant role in global gold markets. The SNB's asset share in gold is now 7.7%, and ramping it up could complicate efforts to tame its currency. In response, derivatives contracts that help traders and investors to profit from, or protect themselves from, sudden shifts in the franc around the time of the vote are increasingly, if cautiously, in demand. "The market impact of a yes-vote would likely be quite spectacular," said UBS strategist Beat Siegenthaler. Switzerland's regions and parliament would need to ratify the motion, which gives it only a small chance of ever coming into force, Mr. Siegenthaler noted. Still, he added: "Investors might want to take out insurance." The market is showing signs of this happening. Typically, the Swiss franc is the quietest of the major currencies, due largely to a three-year-old policy at the SNB of preventing the euro to trade under 1.20 francs. Market participants rarely expect the euro to trade very far from that floor at any given point in the near future. This means that the price of options--which help investors and traders to protect themselves, and profit from, moves in future--rarely budges. But looking out over the next two months, a gap appears. Currency options on the euro against the Swiss franc expiring in two months--after November's referendum--are now more expensive than those expiring in one month, or before the vote. This shows it is somewhat more expensive to buy protection against volatility in this cross after the referendum than before it. A few days ago, the two derivatives contracts were trading in their usual tight correlation. Options on other currency pairs, such as the euro against the dollar, aren't showing the same gap. Gold analysts note a similar modest pickup in demand for gold options, bracing for the small possibility of a potentially huge wave of buying by the SNB. "It certainly supports the price of gold," said Robin Bhar, an analyst at Société Générale, though he added that the weight of expected interest-rate rises from the U.S. is acting as a heavy counterpoint. Gold now trades around $1,228.00 an ounce. "The market is starting to price in the upside risks in the gold market via options but remains fairly calm for the time being," he added. At issue for the currency is what a ruling forcing the central bank to keep 20% of its assets in gold would mean for the exchange-rate floor. The SNB's reserves ballooned in late 2011 when the central bank first committed to buying euros in enormous volumes whenever the euro sank below, or too close to, the 1.20 franc limit, in a bid to avoid currency-driven deflation. If it was forced to stock up on euros again it would need to boost the pace of gold purchases to keep the 20% ratio in place. Similarly, the gold rule would mean the central bank would have to boost gold holdings whenever the price fell, likely at the expense of euros or dollars. This kind of automatic buying and selling would act as a magnet to speculators. It would be "a gift to markets," said Sebastien Galy, a currencies analyst at Société Générale in New York. But the extra layer of complication makes it hard to see how the exchange-rate policy could be maintained indefinitely in its current form. It also raises the prospect that the SNB might be lured into negative interest rates to help keep the franc down. As it stands, the gold motion would require the SNB to buy about 1500 tons of gold in total, phased over five years to reach the 20% target. Investors have so far paid the vote little attention, but are now waking up to the risks. This mirrors traders' last-minute anxiety over Scotland's referendum over independence from the rest of the U.K. in September. "That is beginning to change as people understand the implications of the irreversibility of the gold purchases that would be required by the constitutional change," said Marvin Barth, European head of foreign exchange research at Barclays. "The initiative would almost certainly imply higher volatility in the euro exchange rate against the franc," Mr. Barth said, even if the impact could be either positive or negative for the franc depending on the policy response of the Swiss National Bank.