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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.
more http://www.mauldineconomics.com/ttmygh/this-little-piggy-bent-the-market