Greece, Spain And Gold

May 17, 2016

Greece and Spain are in the spotlight again. What does it imply for the gold market?

The Greek debt crisis has been the topic of many Gold New Monitors. When we wrote about the last bailout of Greece, we expressed concerns that the crisis was not ended, but only hibernated and that we would hear more about Hellas in the not-so-distant future. Indeed, Greece is slipping into the headlines again as there are bailout review talks in order to unblock a new tranche of aid. This money is urgently needed as Greece owes the Troika over €11 billion through the end of July. Unsurprisingly, it turned out that the size of the tranche has to be twice as big as initially planned. Despite economic results worse than projected (for example, privatization revenues are lower than expected), a preliminary agreement was reached last week. However, there is still disagreement on debt relief or on whether to give Greece a new loan without an agreement on debt. The IMF wants partial debt relief for Greece in exchange for deeper reforms, but the EU disagrees. Thus, we could see a rise in uncertainty about Greece, which should increase the safe-haven demand for gold. On the other hand, troubles in the Eurozone may translate into a weaker euro and a stronger greenback, which would be negative for the price of gold.

In December we wrote about the Spanish general election. It was won by the conservative Popular Party, but it did not secure a majority. The inconclusive election led to a political deadlock and a failure to form a new government. In consequence, King Filipe VI dissolved the parliament in May and announced a new general election scheduled for June 26. Therefore, the unstable political situation in the Eurozone’ fourth-largest economy could edge up some safe-haven demand for gold. Additionally, the polls suggest that the June election will deliver a result similar to the last one. It would mean a prolonged period of political deadlock, which should be positive for the yellow metal. On the other hand, as always in case of European turmoil, the uncertainty about the political situation in Spain could support the U.S. dollar and exert some downward pressure on the euro and gold.

Summing up, the uncertainty about the political situation in the Eurozone is rising due to the bailout review in Greece and new elections in Spain. In consequence, the safe-haven demand for gold may increase, but gains could be capped by the upward pressure on the U.S. dollar. On balance, the impact of the Greek debt crisis and Spanish political deadlock should not be large, as gold is likely to be traded in the nearest future more on the Fed decisions, concerns about negative interest rates, the Chinese slowdown and Brexit.

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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.

Arkadiusz Sieron

Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Arkadiusz Sieroń is the author of Sunshine Profits’ monthly gold Market Overview report, in which he keeps subscribers up-to-date regarding key fundamental developments affecting the gold market and helps them prepare for the major changes. Arkadiusz is a certified Investment Adviser, a long-time precious metals market enthusiast and a Ph.D. candidate. He is also a Laureate of the 6th International Vernon Smith Prize.  You can reach Arkadiusz at Sunshine Profits’ contact page.

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It is estimated that the total amount of gold mined up to the end of 2011 is approximately 166,000 tonnes.