SNB Suffers Loss After Price of Gold Fall

July 30, 2013 at 09:21

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The Swiss National Bank suffered a loss of 18.5 billion francs ($20 billion) in the second quarter as the price of gold tumbled, eroding the nominal value of its holdings.

That loss compares with a profit of 8.25 billion francs for the corresponding quarter a year earlier, the Zurich-based institution said in a statement today. For the first half the central bank reported a loss of 7.3 billion francs.

The price of gold fell to its lowest in 34 months in late June, having lost a quarter of its value since the start of April. The SNB said its gold holdings of 1,040 tonnes were unchanged in the second quarter.

The central bank’s profit has been of public interest in Switzerland after the SNB ran up a record 19 billion-franc book loss in 2010, resulting in calls by some politicians for then-President Philipp Hildebrand to resign.

The net result from the SNB’s foreign currency positions — a sum equal to about three-quarters of the economy’s annual output — amounted to a loss of 5.4 billion francs in the second quarter, it said in the statement. It has amassed the reserves due to its efforts to defend the cap of 1.20 per euro set in 2011.

The proportion of euros in the SNB’s foreign currency reserves remained unchanged at 48 percent as of June 28, with dollars at 27 percent, data on its website updated today also showed. The proportion of foreign currency invested in AAA-rated bonds fell to 71 percent from 76 percent during that period, while holdings of AA-rated bonds increased to 23 percent.

The SNB’s gold holdings are the target of a popular initiative, which demands that at least 20 percent of the central bank’s assets be in the form of gold. The measure would also block the sale of such holdings and require all SNB gold to be located in Switzerland. Currently, about 20 percent at the SNB’s gold is held at the Bank of England and another 10 percent at the Bank of Canada, with the remainder stored domestically.

SNB President Thomas Jordan in April said that the initiative could limit its ability to conduct monetary policy, breaking from the SNB’s policy of not commenting on politics.

Because the SNB’s balance sheet has expanded significantly since it set the cap of 1.20 per euro on the franc, were the initiative to be accepted, the SNB would have to buy a large amount of gold to meet the 20 percent requirement, according to Jordan.

The Swiss People’s Party, the SVP, members of which started the initiative after failing to get backing for the issues in parliament, has submitted the requisite 100,000 valid signatures for a referendum, although the actual popular vote may be years away.

The quarterly results of the SNB, whose largest shareholders are the federal government and the 26 cantons, are calculated by comparing asset prices at the start and end of the three-month period, and therefore have little bearing on the central bank’s result for the full year. For 2012, the distributed 1 billion francs to the government and cantons.