Switzerland - Market Introduction

Introduction

Switzerland has been at the heart of the gold business since World War II, as a centre for physical gold wholesaling, for gold investment in private banks and for refining. Swiss Bank Corporation was a buyer at the third London gold fixing after its inauguration in 1919. The Bank for International Settlements (BIS), the central bankers' central bank, was established in Basel in 1930.

Although today, the country's central bank, the Swiss National Bank, holds the sixth largest official stock and has a long history as a strong ally of gold, much has changed in the 1990s. The main Swiss banks have moved much of their gold trading from Zurich to London, the private banks no longer recommend gold as 10% of any portfolio and even the Swiss National Bank is selling its gold since May 2000.

To understand the current Swiss gold scene, it is important to realise the way it was for many years. (See also: Switzerland Market in 2001)

In the late 1940s, while the gold market in London was still closed after the war, the Zurich triumvirate of Crédit Suisse, Swiss Bank Corporation and Union Bank of Switzerland gained hold of the growing physical market to Italian jewellery makers, the Middle East and India. They were often the main buyers in London when the market re-opened in 1954.

In 1968, while the London market was briefly closed when the official price of $35 an ounce broke free, the three Swiss banks did a deal with South Africa, then coming to the peak of its output, to take most of its gold. The former Soviet Union also chose the Zurich banks for most of its sales in the 1970s and 1980s.

So the Swiss had cornered the suppliers of the two great producers; over 1,000 tonnes (32.15 million oz) of metal came through Switzerland each year.

By 1990, however, the era of high inflation and gold investment was over. More important, gold production in South Africa and the old Soviet Union was declining, while major new output came from Australia, the United States, Latin America and south-east Asia and did not flow naturally to Switzerland. While the boom in derivatives trading, paper gold, centred more on London and New York. Finally, in 1997, the Swiss president announced the setting up of a special fund to aid victims of the Holocaust, for which capital would be raised by the sale of 600 tonnes (19.3 million oz) from the Swiss National Bank. Going into the new millennium, the Swiss gold market was a shadow of its former self, even though it retained an important role in the physical bullion trade.