Dan Popescu is a Member of the Goldbroker.com Editorial Team

 

Switzerland’s Role in the Gold Market

 

 

 

suisse-marche-or

« 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 In 1685, when the Nantes Edict was revoked by Louis XIV, Protestants were definitely denied their religious rights.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 buried 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. In addition, 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, at the expense 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 was 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.

 

To read the read the rest of this article click here [includes a number of interesting charts, ed.]

Notes :

(1), (2), (3), Maurice Aubert, Jean-Philippe Kernen, Herbert Schonle, Le secret bancaire suisse

 

 

 

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