At the end of last month, a shock announcement came from the US Customs and Border Protection (CBP), declaring that one-kilogram and 100-ounce gold bars imported from Switzerland would be subject to a hefty 39% tariff, under the country’s “reciprocal tariffs” policy, which had already applied broadly to Swiss goods. This CBP decision came in response to a Swiss refiner’s request for clarity and guidance on whether gold would be part of the wider US tariff policy against the Alpine nation, or whether an earlier exclusion would remain in place. Switzerland remains the world’s largest refiner of gold and sends much of its output to the US (fourth largest export destinations, after China, Turkey and India) and these two specific bar formats also happen to be key for the US futures market.
It therefore came as no surprise that this announcement triggered massive panic and upheaval in the market, with gold prices reacting immediately and dramatically. Futures surged as investors anticipated disruptions in supply chains and the Swiss Precious Metals Association issued a warning that the US tariffs could suspend exports to the country altogether. Gold futures surged to fresh record highs and the spread between New York’s COMEX futures and London spot prices exploded, as chaos reigned and investors scrambled to figure out how severe the impact would be and how to best prepare for it.
Thankfully, this market bedlam was short-lived. By August 11, President Trump took to social media to announce that “Gold will not be Tariffed!”, finally and conclusively reassuring the markets that the metal, in all its formats, would remain duty-free. However, the damage was already done and the lesson was (hopefully learned): this incident clearly highlighted how immense a risk is posed by policy volatility and the extent of the market disruption that can be caused by mercurial decisions and rulings.
Sure, this particular crisis was averted, but what about the next one? The fragility of investor confidence in regulatory processes, especially in the US, is rapidly growing and spreading. And that is entirely justified, given the implications: even refuted policies like the aforementioned one can, and did, cause real financial losses through temporary price swings, hedging costs, and opportunity costs from diverted capital.
We must also bear in mind that it could have been a lot worse: What if the “surprise announcement” wasn’t retracted? Or what if it wasn’t concerning Swiss gold bar imports alone but something even more consequential? No rational, conservative investor can be expected to make a sound financial plan to protect and preserve his wealth, especially for future generations, when he or she doesn’t know what version of reality they will wake up to the next day.
Behaviors of this sort are certainly not exclusive to the US government nor are they as rare as one would imagine. Most western governments are bankrupt and know that further printing will lead quickly to even higher prices, therefore confiscation, stealing, looting is the way forward. They can come up at any time with new laws restricting or confiscating private property, and there will be nothing that most citizens can do about it.
This can happen anywhere, but not in Switzerland. Don’t get me wrong, the Swiss politicians, deep state bureaucrats, the government sponsored “to-big-to fail-multinationals” are no better than the rest of their peers around the world. However, we are the only country left, where for example a confiscation of private property, especially when kept out of the banking system, cannot happen from one day to the next. There is still a political process in place whereby such a decision needs to be presented to the population in a public vote. This alone is a process that takes in average 18 month to 4 years. Under the current circumstances, I believe we will always have 12 – 18 month window to act and relocate to another region– if necessary. However, to me the most important aspect during the current transition period that we are in is the protection of private property rights. Switzerland might not be perfect, but it is as good as it gets.
Claudio Grass, Hünenberg See, Switzerland. www.claudiograss.ch
This work is licensed under a Creative Commons Attribution 4.0 International License. Therefore please feel free to share and you can subscribe for my articles by clicking here
