Will Gold ETFs Be Salvaged By The Upcoming Swiss Vote? [SPDR Gold Trust (ETF), iShares Silver Trust (ETF)]

gold-investingGold is having one of its worst nightmares in more than four years and is currently languishing way below the $1,200 an ounce level – almost near its lowest level since April 2010. The precious metal – which had spiked roughly 200% between January 2008 and August 2013 – is now down more than 41%, below the record low of September 2011.

While all macroeconomic indicators are currently against gold prices and some experts even believe that the bullion might slump to $800 an ounce by the end of 2015, a referendum to be held in Switzerland at the end of this month might decide on the short-term course of gold prices.

The proponents of “Save Our Swiss Gold” have lately built up some pressure on the Swiss National Bank (SNB) to ramp up its bullion position to at least 20% of total assets from the current 8%. The bank presently holds assets worth $544 billion and the current proposal if approved would require the Swiss Bank to buy at least 1,500 tons of gold to meet the required threshold by 2019, as per a Bloomberg article. However, ABN Amro Group NV and SocieteGenerale SA estimate that the amount might be somewhat near 1,800 tons.

Well, if the referendum gets a “yes”, the SNB would be forced to buy the yellow metal in big quantities, shelling out $56.3 billion at current prices, making it the world’s third-biggest holder of gold. Currently, Switzerland holds 1,040 metric tonnes of gold and is the seventh-largest holder of gold by country, as per International Monetary Fund data.

Why is Gold Slumping?

This might bring in some short-term relief to gold prices which have been falling due to a strengthening U.S. dollar against a basket of major currencies. The dollar has been crawling to its seven-year high mark on the back of a reviving U.S. economy, easy monetary policy in most of the developed markets such as Japan and Europe and the recent win by the Republicans in both chambers of the U.S. Congress.

In fact, the hawkish tone assumed by the Fed lately has added strength to the rising greenback. The Fed will finally end its long-running monthly bond-purchase program, and is now closer to the rate tightening cycle, after it has held rates near zero since December 2008.

The strengthening U.S. economy and waning geo-political tensions have in fact dampened the safe haven appeal of gold. Also, a lack of robust demand from China and India – the two biggest buyers of gold – has added to its woes.

Gold ETFs to Watch Out

Experts believe that the referendum, if approved on November 30, might lead to a short-term rally in the bullion market. This is especially true as the quantity required to be purchased by the SNB represents roughly 7% of annual global demand and could trigger a double digit rally in gold prices, as per Bank of America Corp (read: New Gold ETF from Merk Hits The Market: OUNZ).

This might provide some support to gold ETFs which have been trading in the red in the year-to-date frame and have also underperformed broader market products by a wide margin. As a result, investors might want to consider keeping gold ETFs on their radar to watch for any positive movement. Below we have highlighted three popular products in the space, which might move northwards if the referendum goes through.


This is the largest and most popular ETF in the gold space with AUM of $27.2 billion and average daily volume of about 6.5 million shares a day. The fund tracks almost 100% of the physical price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. Each share represents about 1/10th of an ounce of gold at current prices. The ETF charges 40 bps in annual fees and has lost about 2.7% so far this year.

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