We have heard this morning that the Swiss National Bank or SNB has almost doubled its reserves of pound sterling or British pounds to £14.52 billion in the first quarter of 2012 as they try to diversify away from the euro. With that in mind we dug a bit deeper into the activities of this central bank and especially their gold sales that took place between 1999 and 2008.

Prior to the SNB gold sales Switzerland had gold reserves of 2590 metric tonnes. From 1999 to 2005 the SNB sold 1300 metric tonnes and then from June 2007 to September 2008 they sold another 250 metric tonnes so as of today the total Swiss gold reserves is at 1040 metric tonnes. According to a Philipp Hildebrand speech at the Bank for International Settlements or the BIS in May of 2005 the SNB raised CHfr 21.1 billion from the sale of the 1300 metric tonnes of gold that took place between 1999 and 2005. The last 250 metric tonnes were sold in a period where the median price of gold was roughly CHfr 900.

The proceeds of CHfr 21.1 billion of the first 1300 metric tonnes work out to an average price of CHfr 504.85 per troy ounce while we will use a price of CHfr 900 for the last 250 metric tonnes sold which corresponds to a total of CHfr 7.23 billion raised. 1550 metric tonnes is 49.8325 million troy ounces so if we take the total of CHfr 28.33 billion raised from the sales we get a total average price of CHfr 569. The current price of gold is CHfr 1510 so the SNB's current loss on this trade is CHfr 941 (1510-569=941) per troy ounce or a grand total of CHfr 46.89 billion which corresponds to $51.28 billion.

Swiss gross domestic product or GDP for 2011 was $523.77 billion so the loss on this SNB trade is equivalent to 9.79% of GDP! Let us hope that the current trade or diversification into pound sterling and other fiat currencies does not end as badly for the Swiss people!

By Mario Innecco
ForSoundMoney.com

At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.

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