Short-Term Trade Opportunity In Gold Ahead Of Swiss Vote

Zurich (Nov 19)  On November 30, citizens of Switzerland will vote on "Save our Swiss Gold, a popular proposal that would obligate the Central Bank of Switzerland (SNB) to hold a minimum of 20% of its balance sheet in gold reserves. The law, if passed, would also forbid the SNB from ever selling any of that gold.

To be sure, there is no guarantee that the law will pass, and most press reports give the vote little actual chance of success. However, the measure does seem to strike a popular chord with the people. While there is scant verifiable polling data to indicate any probable outcome, turnout is expected to be low, so anything is possible.

Implication of a "Yes" Vote

While the SNB and Swiss Government are both opposed to the initiative, they would be obligated to follow through if the vote passed. As a result, the SNB would have five years to meet the 20% threshold requirement. Depending on the price of Spot, they would need to purchase between 1600 and 2000 tonnes of gold - about 320-500 tonnes per year for the next five years (one tonne is equal to 1000 kilograms or about 2200 lbs). This would have a significant impact on the demand and price of gold.

Recent price action suggests that the market may be starting to hedge the possibility of a "Yes" vote, but there still is considerable room for a near term rally should there be even a hint of positive polling data on the issue.

The Trade

Remember this is a SHORT TERM TRADE that you may be able to take advantage of by purchasing gold sensitive stock today in anticipation of a run up ahead of a possible "Yes" vote on election day. Any number of gold stocks/ETFs will work, but from an ease of use and liquidity standpoint I prefer ETFs such as GDX and GDXJ which provide not only diversification and the ability to exit my position intraday but also levered upside which, if the markets turn even slightly bullish on gold ahead of the vote, should help matters. Regardless of the outcome, the trade should be exited ahead of the November 30 election, as even a "Yes" vote would likely trigger a "sell on the news" event.

Source:  SeekingAlpha