Today, the SNB is no longer in the spotlight with regard to its gold policy. This makes my task today easier than President Roth's seven years ago. I have no newsworthy information to present to you regarding our gold policy. Instead, I will briefly reflect on six commonly held arguments related to commodities and, more specifically, to gold. The point of considering these arguments is not to either reject or confirm them definitely but rather to illustrate the likely speculative nature of long-term gold price forecasts. Since it was freed from central bank intervention, the gold market has been quite volatile. Historical evidence as well as analytical considerations suggest that price volatility will likely remain an important feature of the gold market. First argument: gold is a commodity like any other Since the collapse of the Bretton Woods System, gold has lost its role as an anchor for the international monetary system. Does that mean that it has become a commodity like any other? Before trying to analyse fundamental differences or similarities between gold and other commodities, lets look at what prices tell us: At first sight, gold and other commodity price cycles indeed look similar: the  1  For a detailed overview of SNB's sales program, see Hildebrand (2005), SNB Gold Sales - Lessons and Experiences, Institute for International Economics, Washington. BIS Review 61/2006  1  boom in the gold market since 1999 clearly has parallels in other commodities as well.
Unlike currencies, the value of gold does not depend on a national sovereign. Moreover, payment transactions with gold are fully under a central bank's control. These are two important reasons why gold, more than any other type of investment, serves to ensure the capacity to act in extreme crisis situations. From an investment viewpoint, the price of gold often moves in the opposite direction to other financial assets, in particular to the US dollar. The price for this 'insurance function' is reflected in the fact that gold is less profitable in the long term than other financial assets. It is not surprising that Switzerland, a small open developed country with a highly integrated financial sector and an ageing but relatively wealthy population, continues to invest a significant proportion of its reserves in gold. At present, the SNB holds 1,290 tonnes of gold or roughly 30% of its assets. Price fluctuations in both directions are to be expected and may be strong and sustained. As was the case in the past, such price fluctuations will modify the proportion of gold on our balance sheet from year to year. These short-term fluctuations should not give rise to great concern. Experience has shown that extreme movements in markets tend to level out in the long run. BIS Review 61/2006  5