A $327 billion Swiss bank sold half its gold holding, even as the precious metal breaks to new record highs

  • Swiss private bank Lombard Odier said it sold half its gold position despite its surge to record levels.
  • The bank’s chief economist Samy Chaar said: “We see a bit of vulnerability at the current price levels.”
  • He said the negative economic outlook in the US was not sustainable and real interest rates will eventually recover, something which could keep gold prices volatile. 
  • Gold reached its highest level ever on Monday after a surge in virus cases and a diplomatic row between US and China showed no signs of abating. 
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A private bank overseeing almost $327 billion in assets sold half its gold holding even as the precious metal surged to its highest level yet ever, with the bank’s top economist saying there may be some “vulnerability” in future price levels. 

Samy Chaar, chief economist at Swiss lender Lombard Odier, told CNBC’s Squawk Box Europe, Monday: “We see a bit of vulnerability at the current price levels. We like gold it is part of our strategic asset allocation.”

But Chaar cautioned against how “deep” interest rates have become in the US, something which will affect the price of gold, he said. 

“We do see some vulnerability in gold so we sold half of our position,” he said. 

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Chaar said: “We continue to see negative real interest rates as the main driver of gold prices, so take the 10-year real interest rate in the US, it is basically -1% now, levels we haven’t seen since 2011 or 2012.” 

Low or negative interest rates are typically positive for gold prices as it makes holding bonds less attractive, and therefore reduces the opportunity cost of holding gold. 

“What does this tell you about the US economy? It basically tells you that are not going to have a recovery. The US economy is going to continue to contract,” he said. 

But Chaar said eventually the US economy will recover, and reverse real interest rates. 

Chaar added: “We know what they are going through, we know that they have mismanaged the pandemic, but at some point the US economy is going to recover and as such, real interest rates are going to follow, and that is going to be a tailwind for gold when we think about the months and the quarters ahead,” he concluded. 

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Chaar’s comments came as gold closed at its highest level ever on Monday at $1942.55 per ounce amid a weakening of the dollar, rising diplomatic tensions between US and China, and a surge in virus cases in many countries. 

US-China tensions have risen in recent months as China enacted security legislation in Hong Kong and the countries engaged in a blame war over who is responsible for the coronavirus outbreak. 

They flared again last week as the US ordered the closure of the Chinese Consulate in Houston and China subsequently ordered the closure of the US Consulate in Chengdu.

On Monday, American diplomatic staff members departed the consulate in Chengdu after a 72-hour deadline.

The precious metal is currently trading 1% lower, just shy of $1,923 per ounce. 

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