Gold's Decline Eats Into Swiss Reserves
Central Bank to Cancel Dividends for First Time
ZURICH—It didn't take a heist for the Swiss National Bank to lose $16.6 billion on bullion.
That is how much the central bank said its gold holdings fell in value last year, as the price of the precious metal skidded 28%, the most since 1981. The loss was only partially offset by the central bank's profit on foreign currencies, saddling it with a $10 billion paper loss for 2013 and forcing the bank to cancel dividends to shareholders for the first time since it was founded 107 years ago.
The central bank also said Monday that it wouldn't be able to make additional payments to Switzerland's 26 cantons, which are similar to U.S. states, and the federal government for the first time since 1991.
Investors ranging from coin collectors to billionaire hedge-fund manager John Paulson have been hammered by gold's decline, which ended a 12-year bull run in 2013. Central banks are among the biggest losers, with $350 billion shaved off the value of their holdings in the year through October, according to Wall Street Journal calculations based on the most recent data from the International Monetary Fund. Unless the banks sell, their losses are unrealized and could reverse if gold rallies.
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Most central banks own gold to boost confidence in their paper currency or protect against financial shocks, and are less concerned with the metal's performance.
For many investors, the shrinking role of central banks in the market is another reason to sell. The magnitude of last year's selloff already is making central bankers reluctant to buy more of the metal, weighing on prices and making a rebound less likely in 2014, analysts said.
"It's been a very tough period for [central bank] reserve asset managers," said Tom Kendall, a precious-metals analyst with Credit Suisse Group AG in London, pointing to volatility in currencies and the retreat in gold. "In theory these guys should be managing for the very long term, but the fact that they're recording [paper] losses makes it harder to say you should be adding more."
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