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Gold on Monday was clawing its way back to the $1,200 an ounce, a level it hasn’t strayed too far from for the better part of three months.
In quiet afternoon trade in New York, gold for delivery in August added $7.80 an ounce from Friday’s close to exchange hands for $1,186 an ounce, the best level since June 2.
Gold’s reaction is fairly muted given the failure of last-ditch talks between Greece and its creditors which is pushing the European nation ever closer to a default and possible exit from the eurozone altogether.
Markets appear to be remarkably complacent about the latest Greek crisis. A new research note by Capital Economics, an independent research firm, suggests given the lack of agreement on this one tranche a comprehensive new bailout deal seems unlikely and despite firebreaks put in place a Greek default may well end in a return to the drachma.
Capital Economics says it’s “just starting to see signs of contagion from Greece to other bond and equity markets in the euro-zone”. The spreads of Italy’s, Portugal’s and Spain’s 10-year government bonds over 10-year German Bunds hit their highest for the year on Monday after the collapse of weekend talks:
“A Greek default alone may no longer be a huge surprise and the sums involved would be small in the global scheme of things. However, if the uncertainty undermines investor confidence in the rest of the region, the gold price is likely to climb a lot further. What’s more, if Greece does default, the focus may soon move on to the far more serious issue of potential Greek exit from the euro-zone itself.”
Contagion from a Greek exit could also be greater than markets expect because “if Greece’s economy eventually thrived outside the euro-zone, as we expect it would, this might fuel the rise of anti-austerity and euro-sceptic movements in other European countries.”
This chart using Portuguese government bonds as a proxy for other vulnerable states in the eurozone shows gold and yields have plenty of upside considering the heights seen when Greece was on the brink last.
Source: Capital Economics
Capital Economics expects the gold price to reach $1,400 per ounce by the end of the year, but a messy exit could mean its above consensus view may be too conservative.
6 Comments
Gary
This Grexit story is becoming like days of our lives. Either decide to pay the money or leave. It is getting a bit tiresome of this kicking the can down the road each day.
ExPat
Gold did not “claw its way back to $1,200” and it looks like a Greek default, or even Greece leaving the Euro, will not increase gold prices very much. Gold does not matter very much anymore, as it does not increase in price in the face of events like the Greek debt crisis, flawed monetary policies or geopolitical conflicts.
lost
is that why all major international banks still trade in gold…. treasury bills are traded for Gold… national debts are satisfied by gold
sailormac
Greece has the Eurozone by the proverbials. And both parties know it !
Kenneth Viney
What are you smoking? ” If the Greece economy eventually thrived outside the Euro Zone” is the most insane comment I have read. Have you ever been there? Spoken to the folks? Watched them spend billions on rebuilding the Parthanon? The whole country is a socialist waste land. They have been on the govt. dole for generations. I love the weather and the Greek people but folks give your head a shake if you believe they will thrive on their own unless they go back to working more than a few days a year picking olives.
Ray
The general opinion and practice has been to avoid paying taxes to ask other countries to bail them out is craxy they should never been accepted into the EU. Let them sink because they do not contribute to the union.