« Switzerland is
for gold what Bordeaux is to wine », Gilles Labarthe,
Swiss journalist and ethnologist.
When one thinks of
Switzerland, banking comes to mind easily but gold doesn’t as much. After
all, the relationship between Switzerland and gold is more ancient than the
one with paper bank deposits. Certain bankers from Geneva, such as Lombard Odier and Pictet, started in
1800 and have more than 200 years of history. Back then, paper money didn’t
exist yet and deposits consisted mainly of gold and silver. Today, still, a
full two-thirds of the world’s gold goes through Switzerland and, in an
average year, it refines grossly 70% of the world’s gold. Six of the gold
refiners on the LBMA Good Delivery list make for 90% of global volume, and
four of those are in Switzerland. Up until 1992, the swiss
franc’s 40% backing by gold was written in the country’s Constitution. When
Switzerland became a member of the International Monetary Fund (IMF) it had
to abandon this backing by gold. Today, Swiss citizens have asked for a
referendum to be called in order to get back to that backing.
Gold is, along with
silver, the oldest money in the world, hence its unbreakable relation with
the banking system. Gold is also the most liquid and transportable wealth
protection in time and space. In case of war or revolution, it is hard to
flea with one’s property or other valuable assets as can be done with gold.
In 1685, when the Nantes Edict was revoked by Louis XIV, Protestants were
definitely denied their religious rights. This led most of the Huguenots to flea to the european Protestant
countries, such as Switzerland.
We all know about
Switzerland’s banking secrecy, but a little less about its origins. One might
think that it originates in a text of law, like in other banking centers. But
banking secrecy is profoundly burried in the Swiss
mentality. One can always revoke a law, but it is very hard to change one’s
state of mind or tradition. When you ask a question of a Swiss, you have to
follow up with ten more questions in order to get a complete response. He
will answer bit by bit. If you ask the same question of an Italian, he will
tell you about his whole life. Having lived in Switzerland, this is how I can
best describe Switzerland’s banking secrecy. Swiss people are discreet by
nature. They don’t need laws... laws only reinforce what is de facto.
« It is not the
federal banking laws’ article 47 that defines the notion of banking secrecy
in Switzerland, but common law; banking secrecy thus falls under the general
dispositions of the code of contractual obligations, as well as under
articles 27 and 28 of the civil code, which put into law the principle of identity
protection. » (1) « Penalties for breaking this
principle are covered by the federal banking laws’ article 47, constituting a
disposition of administrative penal law. »(2) The civil code
protects every personal right worth protecting and, notably, private life
secrecy. The swiss federal Court estimates that,
« the inviolability of private life does not only constitute a moral
principle, but is also a civil right, a « judicial asset »; it is
an attribute of personality, and the law protects it. »(3) And
privacy in the economic sphere is also protected.
« What sane man
would not put away some money in swiss banks?
Switzerland is the vault of the world », Félix Houphouët-Boigny,
former President of the Ivory Coast.
For a long time
Switzerland has been building infrastructures to safeguard financial assets
such as gold. Its political stability, its neutrality, its defense system
based on a militia army, and the Alps, that serve as a natural fortress, make
Switzerland the ideal safe vault for gold. And we can add to that ultra-qualified personnel, more dedicated to
excellence than to volume.
During the crisis of the
London Gold Pool in the ‘70s, Zurich has even come close to becoming the main
gold trading hub, to the expenses of London. The Bank for International
Settlements (BIS), the central banks’ banker, is still based in Basel. Almost
all of central banks’ gold trades are effected by
the BIS in the utmost discretion. The headquarters of the World Gold Council
were in Zurich, before moving to London recently. Geneva, where the most
important jewelry auctions take place, has also been the global center for
jewelry and watchmaking for many years.
The sound management of
public finances has the effect of the swiss franc mimicking the price of gold
closely. Recently, in order to protect its exporting businesses, Switzerland
decided to peg the swiss franc to the euro, thus diminishing its attraction
as an anti-inflation currency (in favor of gold). Even though swiss banking
secrecy is no longer backed as much by the authorities and the large banks,
it still remains strong in the mentality of the Swiss people. True, the
americanisation of the swiss banking system since the ‘80s has weakened
banking secrecy and the role of gold in fortune management. But, having talked
with Swiss fortune managers, I see that this is starting to change and that,
without admitting it publicly, they include more and more gold in their
clients’ portfolios. In the last ten years, several companies specialising in
gold storage for businesses and individuals, outside the banking system, have
appeared.
The Swiss have a
reputation for excellence in gold refining. That has let Switzerland become
the hub of gold refining, with nearly 70% of the world’s gold transiting
through the country. Mining companies and gold recyclers export to
Switzerland, where the gold is purified to the highest levels (.9999 or even
.99999). It is then exported in the whole world to jewellers, investors or
central banks.
The best precious metals
storage and safekeeping companies are also based in Switzerland.
Other countries are
trying to compete with Switzerland, but they still have a long way to go,
especially since Switzerland is not sleeping on its laurels. Two of those
countries are City-States like Dubai and Singapore. Singapore is a stable
haven in Asia, as is Dubai in the Middle East, but they haven’t reached
Switzerland’s level yet. Dubai is trying to develop an expertise in refining
and trading gold, whereas Singapore, already with an excellent infrastructure
for wealth management, is developing its capacity for gold storage and, also,
a gold trading market for Asia.
We live in uncertain
times, and no one is safe from unforeseen events. In the actual context, it
seems to me that Switzerland is the best place to store gold. However good
the infrastructures may be, one must never lose sight of the financial health
of the country in which one wants to store gold. A fiscal or financial
paradise that has gone into debt loses its independence and will not hesitate
to use legal means to confiscate assets and, thus, gold, that are on its
territory, as we’ve seen with Cyprus recently. The United States and the
European Union have already adjusted their legislation for possible
confiscation. Even Switzerland was taking the wrong road with its public
finances in the ‘90s but, thanks to direct democracy, a positive radical
change has taken place. This is a positive element for Switzerland, even
though I remain vigilant. The only caveat I have is that the large Swiss
banks, because of high exposure to derivatives and being very present in the
United States, have lost a little of their financial stability and,
consequently, a little of their independence.
« It is said
that the Swiss only love money... this is not true. They also love gold. » Anonymous
Gold Price vs Swiss franc
Largest Gold Refineries
by Capacity (tonnes per year)
Switzerland’s Gold Trading (2013)
Gold Trading between Hong
Kong and Switzerland
Notes :
(1) (2) (3) Maurice Aubert, Jean-Philippe Kernen,
Herbert Schonle, Le secret bancaire suisse
Sources :
Switzerland: the world’s gold hub http://www.swissinfo.ch/eng/business/Switzerl...ml?cid=33706126
Edouard Chambost, Guide de la banque suisse et
de ses secrets
Maurice Aubert, Jean-Philippe Kernen, Herbert Schonle, Le secret bancaire suisse
Nick Laird, target="_blank" www.sharelynx.com
Koos Jansen, www.ingoldwetrust.ch
Jan Skoyles, Where
are the world’s largest
gold refineries?, target="_blank" http://therealasset.co.uk/gold-refinery-list/