Grexit: Apocalypse postponed – again? Gold stutters

So the Greek Parliament has affirmed the acceptance of the latest suite of austerity measures despite something of a revolt inside the ruling party which doesn’t bode well for stability ahead.  It seems that staying in the Eurozone is seen as of primary importance for the Greek people and also keeping Greece in it as hugely important to its EU partners.  The Greek decision should free up funding of up to $86 billion to get it through its latest financial crisis and save the country’s banking system from total collapse, but there are still plenty of hurdles ahead  – in the face of warnings from the IMF that the Greek situation is actually far far worse than the figures which have been used so far would suggest, indicating further bailouts will become necessary.

Thus the global economy has breathed something of a sigh of relief and safe haven investments like gold and silver have suffered accordingly with the dollar rising against the Euro and prices being marked down.

But can Greece deliver, and does the EU trust anything that Prime Minister, Alexis Tsipras promises?  Indeed will the latest apparent total climbdown by the Greeks lead inevitably to a change in government given that it goes entirely against the results of the recent Greek referendum which rejected the EU’s demands pretty categorically?  There has to be a good chance that Tsipras will have to resign given that any agreement on these terms goes entirely against what he has been promising the electorate for the past five months since he and his left wing Syriza party, were elected.  His high stakes poker game seems to have ended in total failure and personal humiliation at the hands of the EU’s political elite dominated by European powerhouse Germany and its President Angela Merkel who have taken a hard line throughout.

The Greek Parliament has thus now agreed to the series of six reform bills demanded by the EU, but not without some serious opposition from members of Tsipras’ own Syriza party (including recently sacked Finance Minister Yanis Varoufakis) and its coalition ally.  This would seem to condemn the Greek people to years more of austerity given the nation’s debts are seemingly almost endless.  But then the alternative could be even worse.

Whether weariness with the whole process will now set in and the Greek people will meekly accept Europe’s dictates, or whether there will now be street protests which could well turn violent – indeed there has already been some limited violent protest ahead of the vote - will remain to be seen.  One suspects reaction against Germany and Germans in particular, which has been seen to be the chief architect of the imposition of ever more austerity, could be unpleasant.  Indeed Germany has come in for strong criticism from many economists over its self-interest position over Greece.  Keeping Greece in the Eurozone is seen as a way for continuing to depress the Euro exchange rate thus benefiting major exporting nations like Germany.

Everyone knows that there’s no way Greece can repay its debts, which means its citizens face continuing austerity indefinitely unless and until some more acceptable form of debt relief is negotiated.  Germany’s hard line prevents this – and some feel that this could lead to Eurozone fragmentation as other smaller nations may see it as effectively putting them under total German financial dominance.  It certainly will provide ammunition for those in the U.K. seeking total EU withdrawal, and if this happens and the U.K. successfully negotiates an exit, then it is felt others may follow.

Impact on gold

But coupled with other factors – a government-manipulated at least temporary end to the Chinese stock markets collapse and yet another statement from the U.S. Fed’s Janet Yellen that interest raising will likely be initiated this year, and the combination saw gold stuttering yet again.  This because the Greek and Chinese situations appear for the moment to have reduced financial uncertainty in the markets while the will she-won’t-she Yellen Fed ever continuing interest rate yoyo effect on the gold price has helped move gold down yet again.  For the gold investor, whatever the short term impact may prove to be, the sooner the Fed makes up its mind and announces a definite interest rate raising programme, the better.  There could be a further downwards knee-jerk reaction in the markets but we wouldn’t necessarily expect that to continue.  Surely the effects have already been taken into account in gold’s lacklustre performance so far this year?

But while the EU has initially voted to accept Tsipras’ latest climbdown and avoid the Greek exit from the Eurozone (Grexit) which had looked very much on the cards, it still remains dependent, among others, on German ratification tomorrow, although this seen as likely given Angela Merkel’s strong support for the decision.  There is already an acceptance in Germany that Greek indebtedness is yet far worse than current official figures suggest and any payback will take years longer than current estimates would indicate, indeed may be indefinite and that it may only be a matter of time before a new bailout is required.  How long can this go on?.

If all is approved and Greece thus comes back from the brink yet again, it still has to deliver, or the whole house of cards that is the Greek economy and banking system, could come crashing down in flames yet again.  And that Greece can deliver, given its history of tax avoidance by the wealthy, its huge pension commitments etc., has to be very much in doubt.  We’d give it a 40:60 chance at best – others rate it 20:80!

Has return to drachma always been Tsipras’ hidden agenda

One wonders if Alexis Tsipras’ policy has been aimed at a Eurozone exit from the start, but in a manner acceptable to the Greek population.

Greece has gone down to the wire and beyond, but  call me cynical - has this been Greek Prime Minister Alexis Tsipras’ plan all along? Coming up with demands with which there is little likelihood of acceptance by the country’s creditors, and then exiting the Euro by being forced out by the wicked Germans and their allies, could be what he has been aiming for all along. But this may have been coupled with perhaps the tiny chance that the Eurozone would cave in which would make him a national hero, and this still remains a possibility given the Eurozone keeps on extending the final deadline for reaching some kind of satisfactory agreement.

Go back in time, and much of the left wing Syriza political party, now in government, took an anti-Euro stance. And its coalition partners, the right wing Independent Greeks party perhaps even more so.  But with opinion amongst the Greek populace hugely pro remaining in the Euro, the pragmatic politician stance took over. Clearly Syriza with a break-from-Euro clause in its manifesto would almost certainly have been unelectable, so this policy disappeared and Syriza was elected, but now with a supposedly pro-Euro stance.

But the negotiations with its creditors – if they can be called negotiations with neither side prepared to give ground on the key demands – could have always been designed from the Greek standpoint to have the nation ejected from the Euro. Alexis Tsipras and his colleagues have supposedly been desperately trying to salvage Greece’s Eurozone membership without making any serious concessions – an untenable position. If Greece is forced out, which looks increasingly likely, he can say that ‘we did our best, but Angela Merkel et al were just intent in grinding Greek noses into the dust’. That is probably the only rationale which could see a Euro exit, but still keep the populace on Syriza’s side, with the undoubted hardships which would follow.

And there would be hardships. But then there are enormous hardships already afflicting the Greek people. Was it ever thus? Greece has a long history of the elite putting the country into serious debt and the poor having to survive with the consequences. This may be Syriza’s attempt to break the mould and really force the Greek wealthy elite to pay their way.

The problem perhaps with the Tsipras extended negotiating ploy is that the banks have already virtually run out of money. In gaining control of its own currency – presumably the drachma – Greece can print its way out of that problem but at the cost of hugely devaluing the new (old) currency. This will make imports prohibitively expensive, although would provide a massive boost to the hugely important tourist industry – the silver lining in the cloud?

New York market sees little physical gold activity but still drives prices

Julian Phillips’ update on what has been/is happening in the major precious metals markets and with the big SPDR gold ETF

New York closed yesterday at $1,153.30 down$0.70 as the gold price began to stabilize as did the euro for now. Asia lifted the gold price to $1,159 and London held it there before it was Fixed at $1,156.50 down $4.75 and in the euro, at €1,091.244 down €3.655, while the euro was at $1.0598, almost unchanged.  Ahead of New York’s opening, gold was trading in London at $1,156.45 and in the euro at €1,092.07.

The silver price closed at $15.57 up 7 cents. Ahead of New York’s opening it was aslo trading at $15.57.  Silver is currently seeing a more positive tone than gold.

There were sales of 2.09 tonnes of gold from the SPDR gold ETF but none from the Gold Trust on Thursday. The holdings of the SPDR gold ETF are at 750.947 tonnes and at 164.02 tonnes in the Gold Trust.  The euro now stands at $1.0586 and, as we wrote this, was starting to slide again.

Asian demand was seen again before London’s opening which indicates a ‘bottoming’ is now taking place. With today being the most active day of every week and the superstitious noting it is 13th with the ‘ides of March’ on Sunday, today could be interesting! Of course this should have no impact on Asian markets which have their own superstitions, making life complicated.

During the past few weeks we have noticed Asia showing either strength or holding steady, then London at best, holds the gold price steady or starts its fall. New York starts to push prices down rapidly and may then recover towards the end of the day.

And yet, New York see very little physical gold action currently. This is primarily due to inefficiencies in the structure of the markets. If the prices in the different centers truly reflected net demand and supply figures, rather like water finding a common level between joined dams, they would smooth out differences.

In the gold market there remains a need for arbitrageurs in the different markets to have pools of accessible liquidity to make this happen. This may start to when the London Gold Fixing process changes next Friday.

A harsh reality is now coming into the Greek debt crisis. The Prime Minister has stated that the only solution for Greece’s debt is to re-structure it. History shows that the only time this has happened is when a country has already defaulted. Only then will creditors try to salvage what they can through extraordinary debt measures. Today’s meeting on the subject may be one of the last straws before Greece’s default. Then what?

Julian D.W. Phillips for the Gold & Silver Forecasters - and


I don’t want to belong to any club -Marx (Groucho): or Does Greece Really Matter?

UK-based mining analyst, David Hargreaves, publishes a weekly subscription newsletter – Week in Mining – aimed primarily at U.K. resource investors but incorporating always pithy comment that should be of interest to resource investors worldwide.  Here follows the introduction to his latest such in which he puts the Greek/EU economic imbroglio, following Alex Tsipras’ Syriza party victory in the recent elections there, into some perspective.  To request a copy of the full letter and/or receive a 4 week free trial subscription click on this link:    

Does Greece matter? If so, to whom?

So this highly indebted, badly run little land has voted-in a far left wing government on what appear to be unsustainable promises. It is an upset which, if we read the popular press, threatens world economic stability.

Really? Here sits Greece:

Greece and the World Economy

World EU USA China India Japan Greece
GDP ($Billions) 98,056 18,005 17,993 17,019 6,451 4,995 351
% Total 100 18.2 18.2 17.2 6.5 5.1 0.4
Population (Millions) 7,100 435 310 1,330 1,150 130 11
% Total 100 7.0 4.4 18.7 18.2 1.8 0.15

So here we have 0.15% of the world’s population generating 0.4% of its GDP, shaking the apples off the trees and threatening to topple the largest single economic bloc. This puts David and Goliath into perspective.

Now why such an impact? We think it has something to do with this: There are 27 EU member states. It is not a federation, nor yet a free trade organisation. It has its own flag, national anthem and currency and a sort-of common foreign and security policy, but all a bit wishy-washy. It bails out ailing members on an annual accounting basis, but has only two regular putters-in financially. You guessed it, Germany and the UK. Most of the others are net takers-out and some of the more powerful members e.g. France, Spain, Italy, are becoming increasingly so.

Strict rules are imposed on those who rattle the begging bowl too loudly and that is Greece right now. It has dragged €240 billion out of the EU charity fund in the past five years and has little to show for it. Not only could it not repay but now says, under its new government, it won’t, except on its own terms. Now this is no way to talk to your bank manager is it?

So we are convincing ourselves that this could not only rock the EU boat, but cause it to hit the rocks.

Suddenly, almost 20% of the world’s economic clout looks shaky. All because 2% of its collateral is suspect.

Is this a club to which you would like to belong?

As Groucho concluded: I don’t want to belong to any club that will accept me as a member.