The Greek crisis has not ended and we could hear about it again this year. What does it mean for the gold market?
Last week, the creditors reached an agreement to resume negotiation in Athens after some clashes over the sustainability of the Greek debt profile. Although the country has no big debt repayment until July, Greece is back on the agenda.
As a reminder, European creditors are demanding further austerity measures in exchange for new funds, but Greeks say the conditions of the current bailout are too severe. They want debt relief and less radical structural reform. The IMF agrees that the debt burden is too high, but it sticks to a reform program. Meanwhile, the European creditors may ignore some deviations from the demanded reforms, but do not want to hear about any debt relief. This is called a ‘Greek stalemate’.
To make matter worse, there are important elections in the Netherlands, France and Germany this year. Many European voters believe that the aid for Greece has already been too high, so the Greek crisis is threatening to become a significant political issue again, especially if the IMF does not participate in the program. Although the upcoming elections are the biggest political threats in Europe, the renewed Greek crisis could also spur some safe-haven demand for gold.
Summing up, the never-ending Greek crisis has returned. The clashes among creditors have eased, but it does not mean the end of the drama. There may be a fresh crisis as soon as in July when Greece is due to repay around €7 billion. The country does not have these funds and is completely dependent on the new injection of bailout cash. The return of financial turmoil in Greece could be another supportive factor for the gold market, however, the investors should remember that the last episode of the Greek drama showed that the markets were resilient to the Greek crisis.
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.