How the central bank squandered Switzerland’s gold reserves

How the central bank squandered Switzerland's gold reserves

Image of lakeside benches in the shape of gold bars in Kreuzlingen, canton of Thurgau, by Sascha Erni

Switzerland produces no gold itself – in 2012 an Alpine village turned down a $1.2 billion project which would’ve been the country’s first and only gold mine.

But it’s the world’s gold refining hub, a major global center for bullion vaults and boasts the world’s 8th largest official hoard of gold.

The country was also late coming off the gold standard and as recently as 1999 its constitution required the franc to be 40% backed by gold.

The Swiss go to the polls on November 30 in a referendum that will lay down new rules for the country’s central bank concerning its gold reserves.

A recent survey found the majority of the European nation’s citizens are in favour of forcing the Swiss National Bank to hold 20% of its reserves in gold, bring back any bullion held outside its borders and halt all sales.

Given the SNB’s track record managing the country’s stash since 1999 it’s not surprising that most inhabitants of Switzerland (not its parliament however which has rejected the idea outright) want to rein in the bank.

Stephen Pope in a blog post at Trading Floor, provides an excellent summary of what is at stake in the Swiss referendum and shows that, while maybe not as bad as Brown’s Bottom*, the SNB has not really shown much financial sense when it came to bullion:

  • Gold as a percentage of Switzerland’s foreign reserves has fallen from 29% in 2006 to 1,040 tonnes or 7.8% by September 2014.
  • The SNB sold an average of one tonne of gold each day for five years.
  • The SNB misread the market by selling 1,550 tonnes cheaply.
  • Sale prices achieved by the SNB ranged from $300 an ounce to $500 an ounce, netting the bank some $21 billion.
  • To meet the 20% requirement the SNB will have to buy roughly 1,500 tonnes
  • At today’s ruling price of around $1,200 an ounce it would set the fiscus back just under $60 billion

Continue reading at Trading Floor.


*Under the then Chancellor of the Exchequer Gordon Brown, the UK sold about 395 tonnes of gold over 17 auctions from July 1999 to March 2002, at an average price of about $275 per ounce.

Image of lakeside benches in the shape of gold bars in Kreuzlingen, canton of Thurgau, by Sascha Erni