Seeking Alpha

Gold pushes SNB to $10B loss in 2013

  • The Swiss National Bank is canceling dividends to shareholders for the first time since its founding in 1907 after it booked a $16.6B loss on its gold holdings in 2013, swamping currency gains and the profit on a sale of former UBS assets. The bank will also not be making any payments to the 26 Swiss cantons (states) for the first time since 1991.
  • The SNB held 1,040 metric tons of the yellow metal as of the end of 2012, and the big loss last year may (or may not) dent a movement which would require the central bank hold at least 20% of its assets in gold - a proposal the bank is strongly resisting.
  • "Anyone who bought gold after 2010 is currently in the loss zone," says Bank Vontobel's Andreas Megg.
  • After a big start to 2014, gold is flat on today's session at $1,240 per ounce.
  • Swiss franc ETF: FXF
Comments (22)
  • Can anyone tell me what $1 Trillion divided by 365 is?


    The answer is $2,739,726,027.


    That's the U.S. annual Budget Deficit.


    So in 5 days the U.S. can lose about $13.7 billion and of course that's not news. The difference being that this is $10 billion the taxpayers and future taxpayers have to pay back and won't be made up by any appreciation in any asset. It is simply consumed.


    So an annual $10 billion loss by the Swiss on an asset they are not selling is news? News the SNB would like you to think is negative and "dent" the movement against holding the precious metal as the note above states.


    My last data coming fro a Swiss friend showed that as of March 20th 2013, about 105,280 citizens signed the petition for the following;


    1) The SNB`s gold has to be stored in Switzerland
    2) The SNB`s gold is unsaleable
    3) The SNB`s reserves have to constitute of at least 20% of gold


    The SNB is against the three postulations.


    Remember, the Swiss were forced to sell a lot of their gold during the first two Central Bank Agreements at much lower prices. The Swiss weren't too happy about that.
    6 Jan, 09:33 AM Reply Like
  • From the article; The SNB said it would provide a detailed report on its 2013 results on March 7.


    We'll know more then. Anything else is pure speculation.


    More from my Swiss friend as to how they got to where they are;


    Between 2000 and 2009 the Central Bank of Switzerland sold 1550
    tons of gold ,one ton on average per day during a five year period,and still holds 1040 tons of gold.


    On the 24th of April 2013,the president of the SNB,Thomas Jordan for the first time revealed where the remaining gold was stored:


    Central Bank of Switzerland : 728 tons (70%)
    Central Bank of England : 208 tons (20%)
    Central Bank of Canada : 104 tons (10%)


    1996 the USA started massive pressure on Switzerland to pay billions because of alleged deep wrongs during World War II.


    The SNB then started to speak of "excess gold reserves" that could be sold.
    The Washington Agreement on gold was arranged 1999.At that time however there was no statutory basis in Switzerland allowing the selling of the SNB`s gold.


    On the first of May 2000 a law was passed which stated the annulment of the fixation of the Swiss Franc to gold.And on the very same day the SNB started selling its gold.
    6 Jan, 02:02 PM Reply Like
  • DOUG


    What's the big deal? I have that gold stored in my backyard. Drones are hovering overhead.. I think some just don't understand the Swiss motive..
    6 Jan, 04:13 PM Reply Like
  • "Anyone who bought gold after 2010 is currently in the loss zone," says Bank Vontobel's Andreas Megg.
    6 Jan, 10:45 AM Reply Like
  • Do you know what banks are paying for your money to be in their control? Have you heard of a "Savings Tax" ?
    6 Jan, 03:12 PM Reply Like
  • Remember that the SNB had 40 billion CHF gains on gold between 2000 and 2012.
    A 15 bln. CHF loss may happen after this long winning streak.
    6 Jan, 10:58 AM Reply Like
  • George,
    The SNB states:
    "Between 2000 and 2007 the bank sold gold for an average CHF 16241 per kilo and realized profit."
    from your source


    That was outright selling, no question about that and since the last sale, the gold price still went further north, opportunities missed by the SNB.
    So why is the SNB so obstinate to refuse divulging where it's gold is kept ? Is it afraid it might become public that the 1,040.1 tonnes are no 1,040.1 tonnes anymore, as happened to Canada a few years ago (Anybody seen my gold ?) ?
    6 Jan, 03:37 PM Reply Like
  • Filipo,
    Thanks for the Reuters link to a very interesting article.
    The minister's statement "Don't know. Don't have to know. Don't want to know" explains everything that the public needs to know..... but doesn't know.
    8 Jan, 05:51 AM Reply Like
  • the noise always gets louder at the peaks and bottoms.
    6 Jan, 11:09 AM Reply Like
  • Doug E.


    "So in 5 days the U.S. can lose about $13.7 billion and of course that's not news. The difference being that this is $10 billion the taxpayers and future taxpayers have to pay back and won't be made up by any appreciation in any asset."


    You do recognize your parallel is full of unproven presuppositions, right?


    Disclosure: I always hold a fixed PM allocation, rebalanced periodically.
    6 Jan, 11:40 AM Reply Like
  • Qniform, if you make comments like this, it would help to know more from what angle you are taking. The presumption might be, from what angle I think you are taking, that the spending conducted will stimulate GDP to where the growth trumps the spending. I understand this possibility. I don't believe it to occur. While there may be some industries that benefit, green related technology and alternative energy for example, there is a fine line that our Congress walks between helping and hurting. I believe they have crossed the line and the proof lies in the bipartisan agreement of Congress on the budget just passed where over the next two years the budget will increase by $83 billion with only a promise of a cut in 10 years of $23 billion.


    For that analogy I present:


    There may be more to what you are hinting at, I'm not sure. Your profile suggests this to be the case. Let me have it!


    As far as your portfolio allocation, you get it. Simple as that.
    6 Jan, 11:52 AM Reply Like
  • You hit one of the major issues, DE. I agree with you that the output (GDP increase) doesn't ever equal the input (deficit spending), but it is not reasonable to believe that there is no gain anywhere. Valuing such future government cash flow against a snapshot of an asset held by SNB is apples and oranges as well.


    I just wanted to be real, my friend.
    6 Jan, 12:10 PM Reply Like
  • No worries Q.


    As far as the economic picture, I'm not sure I stated anywhere that there would be "no gains anywhere." I'm careful about what I say. Sure there are gains in some sectors, like banking, haha. Health care has done well too (Obamacare). Those are some nice 5 year charts.


    I realize that my statement above was a stretch in the sense Seeking Alpha was sensationalizing the gold loss in Switzerland (even though it is paper a loss and Switzerland had nice gains as noted above by George Dorgan). So I simply decided to also sensationalize something that really doesn't get much attention, our Budget Deficit, which is a real number added to a $17.2 trillion real number that moves higher every year.


    While our GDP does go up every year, is it worth the added debt to achieve it, and when will this sentiment change? As well as when will the gold to debt chart return to the norm? (which is I'm sure why you allocate some to gold)...


    6 Jan, 12:40 PM Reply Like
  • Actually, I allocate to gold as "catastrophe insurance" for events that cause widespread fear. Other hard assets evidence better correlation to currency debasement (although gold and silver also have value for that). All this may change, as I see the next bubble to be sovereign debt related...


    We agree on the macro, I think. I just think we're focused on the "last war" and can't see the new wrinkles. Avoid big losses is my motto. I'm lucky enough to have more assets than I can likely use before I die - although my wife is the wild card there :))
    6 Jan, 12:54 PM Reply Like
  • Care to share the "other hard assets evidence better correlation to currency debasement?"


    Thanks...and good luck with the wife. That can be a 50% loss for some.....
    6 Jan, 01:43 PM Reply Like
  • Wait a minute.
    "The Swiss National Bank is canceling dividends to shareholders for the first time since its founding in 1907 after it booked a $16.6B loss on its gold holdings in 2013, swamping currency gains and the profit on a sale of former UBS assets."
    There is something fishy about this news item.
    How can anyone who buys gold, payout dividends except when some gains are made in other divisions, like currency trades or sale of assets.
    But these two divisions made profits according to the article: there were "currency gains and the profit on a sale of former UBS assets."


    I have been scrutinizing the gold reserves pro country each and every month, and I can assure that Switzerland never changed its reserves of 1,040.1 metric tonnes over January 1st 2013 to December 31st of 2013.
    Since gold does not pay dividends and since no costs of $10bn can be attributed to storing the gold, there must be another reason why this enormous cost of $10bn suddenly appears in the SNB's balance sheet.


    What could it be ?
    I have a faint impression, just an idea, that the SNB has been trading gold, without informing the general public. This trading can only have taken the form of selling at low prices and buying at high prices to justify such a huge loss.


    But why being so stupid ? Again, my reight foot says me there is something fishy going on. What made the SNB so desperate as to buying back expensive its cheaply sold gold. Maybe it was the public referendum that urged the SNB to rashly buy back before it would become clear that in fact the SNB had nothing left in their stores.


    Anyone who bought gold after 2011 is in the loss zone, including me. But since I didn't sell my gold, I don't give a damn. And it doesn't refrain me from giving dividends to my childern and grandchildern.
    6 Jan, 12:21 PM Reply Like
  • Filipo, your spot on! Duh, the Swiss aren't so smart after all. It appears they got caught with their pants down. That is a concern for the banking sector as a whole--corruption reigns supreme.
    6 Jan, 12:35 PM Reply Like
  • Ever hear of mark to market? Plus, I make options money on the paper gold positions in my accounts.
    6 Jan, 12:57 PM Reply Like
  • Qniform,
    But mark to market should not refrain Central Banks to keep on paying out dividends, based on the gains made by other divisions than the gold-division.
    I mean, whether gold is valued at $100/oz or at $2,000/oz in the Central Banks' books, who cares ? As long as the Central Bank makes money by trading on FX or leasing/selling assets, the gold price is of no relevance.
    The BNB (Banque Nationale de Belgique) f.i. has gold still valued at $74/oz in their books, but that doesn't keep them of paying a regular dividend even in years when the gold price goes south.
    The gold price only gets relevance for a Central Bank's account when that gold is being sold and/or bought = traded.


    Trading gold options of course is a different matter. If the SNB's losses are due to that, one can only pity them and call them lousy gold options traders.
    But that has nothing to do with "a $16.6B loss on its gold holdings" as the article above says.


    Hence I can only see 2 possibilities:
    1/ or the article has it wrong and you are right: the SNB's losses are due to gold option trading and not to the SNB's gold holdings.


    2/ Or the article has it right and you are wrong: the SNB's losses are due to bad phyisical gold trading and have nothing to do with gold option trading.
    6 Jan, 03:15 PM Reply Like
  • Since many third world and statist autocracies have loaded up on gold, crushing the price (by tapering, economic growth, etc) should be a #1 foreign policy and military tactic by the US and other western governments.
    6 Jan, 12:22 PM Reply Like
  • Loss? What loss? The gold is still there, didn't disappear? Oh, so in terms of the manipulated USD-dollar relationship they have a pretend loss? Oh, ok. And yes it is manipulated. If you don't believe me, check out the gold chart this morning....a $30 price drop in less than a second. Yeah, ok.
    6 Jan, 01:04 PM Reply Like
  • 10
    maybe is a loss to the 0.1% living in his castle in the Alps or there is smoke in the SNB's balance sheet ...are you ready with a fire extinguisher to put out fires? I got go buy one
    6 Jan, 02:24 PM Reply Like
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