The initiative "Save Switzerland's gold", which will be put to a popular referendum vote on November 30th, would oblige the Swiss National Bank (SNB) to boost its gold reserves to at least 20 percent of its holdings, nearly three times more than the current level of 7.5 percent.
It would also require the bank to stop selling its gold and repatriate reserves held in Canada and Britain to ensure that all of its holdings of the precious metal are stored within Switzerland.
"A majority of the Swiss don't even realize that part of 'the people's fortune in gold' is stored abroad and that SNB has already sold off more than half of its gold reserves," warns the committee behind the initiative, made up of members of the populist right-wing Swiss People's Party (SVP).
Posters showing a smiling piggy bank painted red with a white cross like the Swiss flag have been plastered across the wealthy Alpine nation urging voters to "protect the people's wealth" by voting "Yes".
But the initiative has been flatly rejected by the Swiss government, all the large political parties, even including its initiator SVP whose members are divided on the issue.
Industry organizations have also warned that the move would tie the central bank's hands and damage its credibility.
Financial markets are wary of the consequences if the initiative passes in a country that already counts the world's highest gold reserves per inhabitant.
Two different polls in late October provided contradictory clues to which way the wind will blow on November 30, with one showing 44 percent in favour and 39 percent opposed, and the second showing 38 percent in favour and 47 percent opposed.
The polls also showed that between 15-17 percent of voters were undecided.
No new polls have been released since.
Most observers expect the Swiss to snub the motion, and low global gold prices indicate investors agree.
The price of gold traded on the London Bullion Market slumped by 28 percent last year, and struck a four-year low earlier this month.
On Tuesday, gold was changing hands for $1,192.75 per ounce at closing.
However, "if the 'Yes' side wins, gold risks reacting strongly, since the market is not expecting that result," Nannette Hechler-Fayd'herbe of Credit Suisse warned.
UBS chief economist Daniel Kalt meanwhile acknowledged the outcome remained clouded by the lack of attention paid to the initiative in Switzerland.
"People may just decide with their gut," he told AFP.
There has been little debate about the gold initiative, which has been eclipsed by two other explosive issues on the table as part of Switzerland's direct democratic system.
On November 30th, the Swiss will also decide whether to cap annual immigration numbers in the name of protecting the environment, and also on whether to axe special rules offering deep tax breaks to rich foreigners residing in the country.
Swiss central bank chief Thomas Jordan has however appealed to Swiss voters to pay attention, warning that if the gold initiative passes the consequences could be disastrous.
"The central bank's capacity to take action would be weakened," he told the SonntagsZeitung weekly on Sunday, saying the country would also more easily slip into recession.
"This would also lead to higher unemployment."
Analysts with RANsquawk estimated last week that SNB would be forced to buy some 1,783 tonnes of gold to push its stocks up to the 20 percent mark.
The bank "would have to buy almost 10 percent of yearly global production of gold until 2019," they said in a note.
To avoid hoarding gold, SNB could instead choose to sell off currency or reduce the size of its total holdings.
SNB credibility at stake
The bank's wiggle-room is however already limited by its efforts to rein in the Swiss franc, traditionally seen as safe haven by markets in tough times.
In September 2011, as the Swiss currency gained ever more clout against the embattled euro, the bank set a floor rate of 1.20 francs to the euro, in an effort to protect exporters.
If the gold initiative passes, the bank could no longer sell gold, and if it wanted to buy euros to defend the floor it would likely need to buy gold in the same proportion.
This could force the SNB to turn to other unconventional methods of keeping down the value of the franc, like negative interest rates, analysts said.
Strategists at Commerzbank said the ban on selling gold would put the very credibility of SNB at stake.
If SNB's gold "reserve can no longer be sold in the event of a crisis it no longer constitutes a reserve in the stricter sense," they said, adding that "if the gold reserves cannot be sold they are 'lost' for the Swiss."