Gold Rush (Jerusalem Post, November 28)

Sunday December 1, is shaping up as an important date for the global financial system. That’s unusual, given that Sundays are usually quiet and uneventful days in the financial arena. Other than the handful of bourses that trade on Sundays – Riyadh, Bahrain and, of course, Tel Aviv – no business is conducted.

Only in times of intense financial crisis – such as September-October 2008 and the repeated crises in Europe between 2010-2012 — is the quiet of a Sunday disrupted. In a hastily-convened huddle, the high and mighty  try to pick up the pieces of whatever broke — and to finish the job by Sunday night, when the global market week begins afresh in the Far East.

Nevertheless, this Sunday will be important, even though there is no immediate financial crisis weighing on the world. In Switzerland, a unique country with a unique system of government, the citizenry will vote in a referendum about the country’s holdings of gold.

There is probably no single word in the economic/ financial lexicon that conjures up the emotions aroused by ‘gold’. For much of the past century, gold has been in the dungeon from an economic perspective, with mainstream theory regarding it as ‘a barbarous relic’, in Keynes’ memorable phrase. But even its numerous detractors are almost instantly transformed from boring academics to rabid ranters, as soon as the topic of gold and its place in the modern financial system is raised.

The fire and brimstone that the mainstream, anti-gold camp pours on ‘gold bugs’, as it derisively calls supporters of an official role for gold, is matched by the quasi-religious fervor displayed by the pro-gold camp. The latter are well organized in surreptitious, almost underground, ‘resistance’ movements which seek to restore gold to its central role in national monetary policy and the international financial system.

The Swiss are not exactly renowned for passion about anything, and their recent behavior confirms this. First, the Swiss banks were brought to their knees and their sacred secrecy swept away by the Americans – without the Swiss public climbing the barricades.

Still more dramatically, the Swiss Franc, the symbol and substance of Swiss stability and success, has been effectively neutered as an independent currency, by the decision of the Swiss National Bank (SNB) in August 2011 to link it to the euro via a fixed rate. The rationale behind that traumatic and historic decision was valid, but it is perhaps the ultimate tribute to the Swiss determination to be rational about money that this policy decision did not trigger unrest, even revolution.

But it would seem that the deliberate destruction of the Swiss Franc, by the very institution whose job it is to protect it, has triggered considerable unease. Indeed, the mere fact that there is a referendum on the issue of how much gold the SNB should hold may be seen as an indication of how concerned the public is – because a referendum must garner considerable public support before it can even take place. The fact that, despite the loud and clear opposition of the SNB itself, and of the entire Swiss business and financial Establishment, the “yes” camp – which wants the SNB gold holding to be enshrined in the constitution – may actually win and will certainly attract a large minority of the votes, must be seen as a vote of non-confidence in the SNB and its policies.

But this referendum is hardly just an internal Swiss matter. On the contrary, the debate on gold has been getting louder and even more passionate, everywhere. Just last week, the Dutch central bank announced that it intends to repatriate the gold currently held in the vaults of Wall Street banks. Germany announced a similar move, but was persuaded to withdraw its request to withdraw its gold from the US. Meanwhile, the Russians and the Chinese have been buying gold heavily and thereby boosting the proportion of their foreign exchange reserves held in the yellow metal, which pays no interest or dividend, but does incur charges for storage, insurance, etc.

Yet, even with this background of concern and growing demand, the price of gold has been falling since the historic high above $1,900 an ounce recorded in 2011, to a recent low of barely $1,100. The gold lovers can only explain that seemingly strange development by claiming that the price is being rigged – by the big banks, or the big Western governments, or both, if you believe they are two sides of the same very tarnished and devalued coin.

That would be typical gold bug looniness – were it not for the unfortunate fact that the rigging of the gold market in London has been proven, as has the manipulation of most of the key financial markets. In short, the vote on Sunday may represent a much wider electorate than the few million adult Swiss – and its outcome may trigger demands along similar lines in many countries.

Any widespread expressions of support for gold will have a profound impact on the multi-trillion dollar experiment in ultra-loose monetary policy now being conducted by central banks around the world.

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