Carmignac’s Bond Chief Sees Swiss Gold Vote Limiting SNB Powers
Nov. 21 (Bloomberg) — The Swiss National Bank’s ability to defend its currency cap would be limited should the country’s voters back a measure forcing it to hold at least 20 percent of its assets in gold, said Carmignac Gestion SA’s head of fixed income Rose Ouahba.
“The real impact is when the SNB has to defend the peg,” Ouahba, whose team manages 28.4 billion euro ($36 billion), or about 57 percent of of Paris-based Carmignac’s assets under management, said in an interview from Zurich on Nov. 19.
The Nov. 30 vote has raised pressure on the Swiss franc as the SNB has pledged to defend its ceiling on the franc with unlimited purchases of foreign currency. The central bank, which currently holds about 8 percent of its assets in gold, would need to stock up on bullion in the next five years if the vote would get accepted.
“Before they used to buy euros and either recycled them into dollars or put these euros to work into bunds, earning a decent return on that,” said Ouahba. “Now they would probably have to recycle a large part of that into gold which will make no money and then we also don’t know about the evolution of gold prices.”
Ouahba said the German bund market wouldn’t be affected by the Swiss vote as SNB purchases aren’t a big driver of the securities’ performance. The measure also blocks the SNB from the sale of any gold holdings and requires all SNB gold to be located in Switzerland.
SNB Test
According to a poll published by gfs.bern this week, 38 percent backed the measure, while 47 percent are opposed it, with 15 percent still undecided.
“It will probably not be as easy for the SNB to intervene,” said Ouahba, adding that “the possible impact of the ‘yes’ vote the next day is probably that the market will try to test the SNB by putting some pressure on the lowest level of the peg.”
Ouahba said whatever happens, the SNB won’t abandon its ceiling of 1.20 per euro which it set in September 2011, during the height to the European sovereign crisis when the franc approached parity with the common currency.
“It would make no sense to raise the level of the peg,” she said. “The more plausible outcome could be that at some point they put the interest rate into negative territory to make it easier for them and to protect the peg.”
To contact the reporters on this story: Roxana Zega in Zurich at rzega@bloomberg.net; Carolyn Bandel in Zurich at cbandel@bloomberg.net To contact the editors responsible for this story: Deborah L Hyde at dhyde10@bloomberg.net; Mark Bentley at mbentley3@bloomberg.net Zoe Schneeweiss, Jan Schwalbe
