Neil Davies, Head of Trading at PlutusFX, takes a look at the Swiss Franc (CHF)

The Swiss Franc is not best known for its volatility. The fate of the safe haven currency is essentially linked to its neighbour the Euro. A brief look at the EUR/CHF chart shows the narrow trading range. In fact, over the last three years the pair have only traded over a 5% range between EUR/CHF 1.2 and 1.26, currently sitting at 1.206.

Switzerland is inextricably linked to its neighbours for trade, with over 50% of all exports going to the European trading bloc along with three quarters of all imports coming from their neighbours. In terms of product, the Swiss are dependent on Gold, which is by far and away both its biggest import, at 21% and its biggest export at 20% of all exports, far outweighing all other products.


Unsurprisingly then, there is much interest in an upcoming referendum, brought forward by the right wing Swiss people’s party, which if passed will mandate the Swiss National Bank to hold 20% of its assets in Gold. The current position is 7.7%. Based on a current asset holding of $547 billion, this would create a demand for $67 billion USD of gold. Other analysts have put the figure in gold tonnage terms as being half the world’s gold mined per annum.

Polls currently show that a yes vote is unlikely, and indeed, even if passed could restrict the SNB’s ability to conduct monetary policy and make it unable to fulfil its legal mandate.

To date, both the price of gold and indeed the strength of CHF have ignored the possibility of a yes vote. However, should the vote be passed, I would be surprised if there was anything other than perhaps a short term knee jerk reaction which will most likely somewhat retrace. The SNB, with expertise and also a five year timescale to execute, will no doubt not be employing ‘Gordon Brown’ style tactics, the Chancellor making himself infamous when he announced to the world, well in advance, that he would be selling off 400 tonnes of gold, allowing the market to send the price of gold to a 20-year low.


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