Is gold becoming the new currency? The Swiss stock exchange will soon offer clients the possibility of having post-trade profits paid out in gold.
Introducing the new service, post-trade specialists operating on the Swiss stock exchange Six Securities Services (a subsidiary of Six Group, owner of the Swiss stock exchange) said the new payment versus delivery service using gold was the first of its kind in the world and would operate “exactly like” a new currency.
The Swiss stock exchange and Scoach Switzerland, the stock market for structured products, plan to introduce the listing and trading of products in XAU gold units (equal to one troy ounce of gold) in October.
Clients wishing to take advantage of the new payment versus delivery service will need to have an account denominated in XAU gold with Six Securities Services, as they would have an account in euros, francs or dollars, Six spokesman Alain Bichsel told swissinfo.ch.
And although there is no minimum requirement on the amount a client has in the gold account, the account will need to be stocked well enough to cover the proposed trade – as with any other currency, says the company.
Gold will be valued in dollars and stocked at Six’s gold warehouse facilities in Olten, northern Switzerland. Gold account keeping fees have yet to be determined.
“Gold is like the new currency,” Bichsel explained. “You can trade about 23 currencies on the Swiss stock exchange. It works exactly the same as a new currency.”
Bichsel said the service was a world first and was being introduced because of the current economic climate which was seeing a high demand for “the security of gold”.
The price of gold has jumped from around $1,400 (SFr1,260) an ounce in January to peak at nearly $1,900 in August and is currently trading at around $1,730 an ounce.
Professor of finance at St Gallen University and director of the Swiss Institute of Banking Manuel Ammann said the volumes of gold products that have been traded in recent times had increased significantly.
One reason for that, he said, was that as economic conditions force more central banks, including the Swiss National Bank, to pursue policies of weakening their currencies, trust in traditional currencies is eroding.
“Gold has appreciated a lot and there’s not so much trust in paper currencies,” Ammann told swissinfo.ch. “This means that more and more people start thinking of new means of how their purchasing power can be maintained.”
According to Bichsel the service has been introduced following consultations with stock exchange customers who asked for the possibility of trading with gold. He said the service would be open to anybody with permission to trade on the stock exchange, regardless of the size of the client.
Exactly who those clients will be remains the great unknown. Bichsel says observers will have to wait until the service officially begins to see what happens. He said while the service is here to stay, there are no plans to introduce it on other stock exchanges.
“Theoretically it’s open to everybody, so it’s not closed to only big fortunes or big banks,” he said. “The market will show us if it’s needed or if it works.”
Ammann said that although he could see a “potential niche” in the use of gold as a settlement currency, it was difficult to see broader applications of the offer.
“I can see a certain application in terms of gold products or structured products on gold, or funds denominated in gold or things like that where a settlement currency in gold could facilitate in the setting up such products,” Ammann said.
However, he added that while the service had potential, “the interpretation of gold being a new shadow currency or parallel currency is probably going a bit too far”.
“Perhaps the Swiss exchange is now a really early mover and has a lot of foresight in that respect, but currently I see no immediate threat that we are all going to be soon thinking in terms of gold when we go shopping!”
Gold has been used in Switzerland since prehistoric times to make jewellery and ornaments. In Celtic and Roman times it was used for coins.
From the 15th century onwards, wealthy townspeople wanted jewellery, art and domestic items which they ordered from local goldsmiths. Jewellery and clock-making and gilding were established in Geneva in the 15th and 16th centuries and later spread through the Jura region.
In the 19th century coins were less popular due to bank notes. But gold became the reference for fixing the value of currencies in the international monetary system (gold standard). A similar system was used from 1946-1971.
(With input from Swiss historical dictionary)
Six Securities Services specialises in post-trade activities for the Swiss domestic market and international markets. Together with the Six Swiss Exchange, it is a subsidiary of Six Group.
Scoach is a joint venture between Six Group and Deutsche Börse AG. It operates trading platforms in Zurich and Frankfurt.
In 2010, Six Group reported operating income of SFr1.22 billion and net income of SFr173.6 million. Six has some 3,780 full-time equivalent staff.