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Monday, February 16, 2015

The simple reason the Swiss are moving away from cash deposits and into gold

With negative interest rates sweeping the nation, investors are turning to gold to avoid cash charges

Swiss bank and wealth manager, Vontobel Holding AG, reports that Swiss investors are turning to gold as the Swiss National Bank is forcing banks to add charges to cash deposits. Coupled with concerns over Greece's potential exit from the eurozone and the possibility of increased conflict in Ukraine, this means that an increasing number of investors will be looking for safe haven assets to protect their holdings.

Gold has already climbed 4.2 percent this year in spite of potentially higher interest rates in the U.S. strengthening the dollar, as investors' holdings in gold-backed funds are reaching a peak not seen since October. Chief Executive Officer of Vontobel, Zeno Staub, told reporters that they "keep noticing that gold is coming back into favor with investors" when the company announced their yearly earnings on Wednesday.

The negative yield from holding onto Swiss francs and bonds is making bankers and their clients look for alternate investment options. The increased charges imposed by the Swiss National Bank on banks keeping their franc deposits in the central bank saw Vontobel increase their proportion of gold in discretionary managed investments by two percent.

Several prominent Swiss banks, including UBS Group AG and Credit Suisse Group AG, as well as Geneva's biggest banks are all introducing additional deposit charges to certain types of customers in order to compensate for the introduction of negative interest rates by the Swiss National Bank. In order to avoid the cash charges, many investors are turning towards gold.

While Staub said that Vontobel charging some clients more is only meant to dissuade large investors (like banks) from seeking security and that smaller and private clients won't be affected by the changes, Chief Executive Officer of UBS Group AG, Sergio Ermotti, voiced his concerns that this might not be the case.

Ermotti believes that the franc's surge and negative interest rates in Switzerland and other euro areas might end up putting pressure on profitability should they continue, suggesting that private clients might end up being affected by the cost of negative rates as well.

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