Gold News

Greece Vote Changes Nothing for Gold

<p><em>Greece is still in trouble – and gold still has safe haven appeal...</em></p>
<p><!--break--><strong>NOW THAT</strong> the initial worries about imminent Greek default have diminished, &nbsp;Gold Prices have been flat to weak. But it's far too early to completely write off a Greek default – which seems inevitable in the short to medium term, <em>reckons Lawrence Williams of MineWeb.</em></p>
<p>Indeed if one talks to market analysts there is the general opinion that Greece's track record does not exactly fill one with confidence even that the proposed austerity measures will actually ever be implemented to the extent the ECB and IMF expect. So Greece will likely be plunged again into a default situation within a very short time.&nbsp;</p>
<p>Some analysts say five years until default which would give those most likely to be plunged into the economic mire as a result some time at least to mitigate their exposure, but don't bank on it. Greece could implode well before that.</p>
<p>But in the very short term, this week's Greek parliamentary votes have enabled the ECB and IMF to make the money available to Greece to ward off default for the moment without breaching their own guidelines – however dubious they may be about the outcome. Coupled with the weak summer period when demand drops from Asia, precious metals are likely to remain under pressure for the next month or so.</p>
<p>In effect, though, the €12 billion loan – which defers a Greek default for a month or so while another major rescue package is worked out – was something the ECB/IMF had to organize somehow because a technical default would have driven German and French banks near bankruptcy because of their huge exposure to Greek debt.&nbsp;</p>
<p>The consequent knock-on effects throughout the heavily interlinked global banking system would have been horrendous – not to mention the pressures that would have also then descended on Ireland and Portugal (which in turn would have put UK and Spanish banks in particular under huge stress.)&nbsp;</p>
<p>Greece was the first domino which could have led to a global financial collapse.</p>
<p>But on past experience lending more and more money to Greece in an attempt to give it time to sort out its debt problems has to be pouring good money after bad.&nbsp;</p>
<p>No-one seriously sees Greece balancing its budgets and paying off its debt inside perhaps 50 years. All that is happening is buying time. Greek default still seems inevitable. The country's political opposition party is against the austerity measures and favored an immediate default, as does an estimated 70% of the population.&nbsp;</p>
<p>What chance does that give the governing PASOK party of retaining power? It is said that a week is a long time in politics, but in this case as the Greek people are subjected to enormous drops in living standards, government support out there will probably diminish further. Although a general election is not due until 2013 there is, given the degree of unrest on the streets, the distinct possibility that the government could fall well before then.</p>
<p>But of course the economic woes do not begin and end with Greece, which in itself is a small economy – as are those of the next most likely to come under renewed pressure, Portugal and Ireland. Like Greece, they too are also beset with the fixed Euro currency system which is buoyed up by the stronger Eurozone economies and thus does not give them an option, for example, to devalue and inflate themselves out of the financial mire. The big worry out there is that one of the big Eurozone economies now comes under pressure – as seems a distinct possibility for both Spain and Italy.</p>
<p>So what are the prospects for gold under these circumstances? At the time of writing, Gold Prices are down fairly sharply in the low $1490s, with silver a little above $34.00 – well off recent peaks in both cases, and particularly so with silver where the April momentum has completely disappeared from the markets.&nbsp;</p>
<p>This is largely from relief that Europe has not actually imploded financially – yet. But as the worries over this increasing possibility resurface over the next few weeks and months, as they surely will, the safe haven aspects of gold investment will return – perhaps in time for a serious run up from September onwards. Although whether it will reach the heights this year that some of the more bullish commentators predict would still seem far away.</p>
<p>Even so, it is probably not time to sell gold now, although technical factors could drive it down further in the very short term. The Global economy remains precarious and things could turn even worse quite rapidly in the current environment.&nbsp;</p>
<p>There have been some far sharper corrections during gold's 11-year bull run which have been relatively short-lived. Only a couple of days ago renowned economist Marc Faber warned that gold may fall further during the northern summer months, but still remains a confident holder of both gold and silver for the medium to long term. This seems like good advice until the economies of those countries under most pressure – mostly in Europe plus the USA – really begin to pick up.</p>
<p>And that could be some way off yet.</p>
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Founded in 1999 as part of the Johannesburg-listed MoneyWeb media group, Mineweb is one of the world's leading sources of mining and metals-investment news, comment and analysis. Managed since 2003 by professional mining engineer Lawrence Williams – formerly of Mining Journal, and with more than 30 years' technical and financial experience in the sector – MineWeb provides thorough, international coverage of the natural resources industry.

See all MineWeb articles.

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