Swiss Voters Reject Gold Referendum; India Ends Restrictions on Gold Imports

It was reported by Reuters this morning (Sunday) that the proposal stipulating the Swiss National Bank (SNB) hold at least 20 percent of its balance sheet in gold was voted down, according to projections by Swiss television SRF as of 1:00 p.m. local time. The initiative “Save Our Swiss Gold” also would have prohibited the SNB from ever selling any of its bullion and required the 30 percent currently stored in Canada and the U.K. to be repatriated. Polls, including one by gfs.bern, had correctly forecast the Initiative’s rejection.

However, in a surprise move mid-day on Friday, India announced that it has scrapped a rule mandating traders to export 20 percent of all gold imported into the country. This action is expected to cut smuggling and raise legal shipments of gold into the world's second-biggest consumer of the metal after China. India had introduced the so-called 80:20 import rule tying imports to exports of jewelry last year to bring down inbound shipments and narrow the current account deficit that had hit a record.

"It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed on import of gold," the Reserve Bank of India (RBI) said on Friday, without giving a reason for the change in the rule. 

Traders said before the decision on Friday that India's gold imports could climb to around 100 tonnes for a third straight month in November as dealers bought heavily ahead of the wedding season.

October shipments to India, the world's No.2 gold consumer behind China, jumped to about 150 tonnes from less less than 25 tonnes a year earlier and 143 tonnes in September, according to India's Finance Ministry. The October jump follows a 450 percent increase in September imports to $3.75 billion.

The rejection of the Swiss Gold Referendum is clearly a blow to gold bulls. However, since this negative result was widely expected, perhaps India's bullish surprise announcement late Friday may be at least partially offsetting. It's not hard to imagine that if the Swiss Gold Referendum had passed, the Swiss National Bank would have found a way to circumvent the Referendum's constraints by using the derivatives market in some creative way. India's announcement may actually be more bullish for gold when all the dust settles early this coming week. Last year, India imported 825 tonnes of gold. In the January-September period, gold imports stood at 525 tonnes. With almost 300 tonnes imported in October and November, total gold imports for all of 2014 will almost certainly exceed last year's total!

Postscript (Sunday 5:15 PM CT): In the futures market, Gold just opened down about $8.00/oz. If you are long gold, you never like to see it down on the day, but given this morning's negative vote on the Swiss Golf Referendum, this decline seems extremely modest. And I think it is fascinating that there have been more than three dozen stories today so far on the Swiss vote to reject its Gold Referendum, but NO stories all weekend long on the much more important shocking news out of India that its 80:20 import rule has been totally scrapped! If the Swiss Gold Referendum had been approved, the Swiss National Bank would have had to buy a minimum of 25 tonnes of gold per month for the next five years. Imports of Gold into India are on a pace to exceed 900 tonnes this year, or 75 tonnes/month on average (more than triple!). Since total global mined production this year will probably not exceed 3,000 tonnes, India is now on pace to import more than 30% of total annual mined production this year alone!