A Greek Exit and the Gold Market Posted by James Randolph on May 29, 2012
Perhaps the biggest overarching influence on the gold market right now is the possibility of Greek exit from the European Union and the European Monetary Union, which would have startling impacts on international economics and on gold. Analysts and speculators have been attempting to cope with the ramifications of a Greek exit for some time, but it is difficult to project with complete accuracy because no nation has left the European Union.
Gold and other precious metals have historically become even more popular with instability in Europe partly because of the concern the instability generates in markets. Safe-haven buying jumps to new records with each wave of impending Greek problems as investors seek to hedge positions or remove themselves entirely from the market.
Lately, the metal has cooled, somewhat, with gold falling by 1.3 percent last week despite a rise on Thursday and Friday. Silver was also down on the week and gold and silver ETF’s were also down. However, since the inception of the publicized debt problems in Greece, gold has been on an historic multi-digit rise.
The fundamental rift in the Eurozone is between Greece and Germany, with Greece receiving multiple bailouts from Germany, which is the biggest manufacturing base in all of Europe. Those bailouts have been extremely unpopular politically in Germany itself as the German taxpayers voted against such bailout measures. The bailouts were even more unpopular in Greece as the so-called austerity measures that have caused a great deal of grief for many Greeks were imposed on them in order to receive the bailouts.
That rift has now reached greater levels of discord, though that did not seem possible before. Germany is all but forcing Greece out of the European Union in order to contain the sovereign debt problems and isolate Greece from other European states.
Many analysts and investors feel this action should’ve happened some time ago, but politics apparently would not allow it. The Greek exit we will now see as a result will be that much bigger, more dramatic, and more devastating to economic markets.
Gold is set to benefit nicely from any Greek exit as markets readjust and as investors again take to safe haven buying, which experienced a drop off during the first quarter. Even the talk and hype over the Greek exit is enough to stimulate the gold market and slow the downward action of the correction.