Gold Hovers At Around US$1,200 As Speculation About An Increase In Swiss Holdings Vies With Dollar Strength

New York (Nov 26)  The recent arrest to the decline in the gold price has been attributed by some to the uncertainty surrounding the upcoming vote in Switzerland regarding central bank holdings should be. At the moment, the Swiss hold around eight per cent of reserves in gold, but a “yes” vote would push that up to 20 per cent.

The implications for this are interesting. First and most obviously it creates upward pressure to the daily spot price – in recent days this has been strong enough to overpower the downward pressure of dollar strength. But second: the very fact of the vote, never mind whether it’s a “yes” or a “no”, speaks to the enduring power of gold as a safe haven currency in an uncertain world.

Plenty of economic observers – although not necessarily those privy to the rarefied atmosphere of central bank conclaves and government meetings – would regard an increase in gold holdings by the Swiss as a sensible move. In spite of the recent end to quantitative easing in the USA, other currencies remain under severe pressure.

Thus, gold has risen by around 10 per cent against the yen and the euro this year, while declining against the dollar.

That in turn demonstrates that the US is the world’s hegemonic power economically, but we knew that already in spite of the sound and fury of the Supercycle advocates and those pitching the China story. China may indeed take over the world in due course but although it’s had a good run lately, it’s not going to present a serious challenge for some time to come.

What China does with its own currency will also be interesting, as an easing of the dollar peg might move Chinese investors back in to gold.

But the key issue will be how renewed dollar strength balances against wider global uncertainty, both political and economic.

It’s a situation in which opportunities are rife, at least for gold bulls. Randgold, for example, is believed to be sitting on a war chest of between US$500 million and US$700 million, and Mark Bristow has lately been making noises about acquisitions.

But that’s because he’s one of the few players in the industry that has managed to weather the recent storm. The wider gold mining sector he describes a “busted flush”, arguing that opportunities will arise because the competition “isn’t that sharp”.

Separately, Petropavlovsk, once a big noise on the FTSE gold mining index with its 600,000 ounces of production, but now shrivelled to a market capitalisation of just £35 million, has announced the sale of another non-core asset. That deal will do nothing to stem the tide of creditors that threatens to engulf the company, and it looks like even a big uptick in the gold price won’t be enough to save it now.