How Are Gold Prices Likely to be Affected if Greece Defaults on Their Debt?

Many people are asking the question of how a potential Greek default is likely to affect the price of gold, and we’ll attempt to answer that question in this article.  With one year Greek bonds currently yielding 70%, the possibility of Greece defaulting on their debt is becoming more and more likely.

Considering that gold tends to move inversely to the strength (or lack thereof) of currencies, we’re likely to see some movement in the precious metals market if an actual default takes place.  Let’s run through a couple of different scenarios in an attempt to determine what the likely impact will be on the price of gold.

A default typically indicates a weakness in a currency; however, the Euro is an interesting currency, as the European Union consists of countries with relatively healthy economies and other countries that have junk rated debt.  While not always the case, typically the northern European countries have stronger economies and lower levels of debt, while the southern European countries have higher levels of debt and lower debt ratings.

While Greece has a relatively small economy compared to other European countries, a default would likely have a negative impact (at least temporarily) on the strength of the Euro.  The price of gold would likely go up relative to the Euro, but it won’t necessarily increase in price when measured in dollars, as the dollar could be the beneficiary of investors selling the Euro looking for a safe haven.

On the other hand, a weakening Euro could also cause the dollar to weaken if individuals perceive all major currencies to be suspect in an environment of increasing debt levels, record high deficits, and loose monetary policies.  Prior European sovereign debt issues have caused the price of gold to increase, so this is a possible outcome if Greece in fact ultimately ends up defaulting.

Another factor to take into consideration is that likely future events may already be priced in to the gold market, so if a default is expected by the market, it’s possible that we’ll see little to no impact on the price of gold.  We’ve seen this in the past with negative economic data when it is anticipated by the market.  In fact, on occasion, if the economic reports are bad, but not quite as bad as expected, we’ve seen situations where the price of gold has actually dropped, even in the face of negative data.

In summary, there are a number of different scenarios that could occur in the event of a Greece default, so it’s impossible to predict how the price of gold will be impacted when viewing a default in isolation.  The price of gold could rise if there’s concern that the fear of default could spread to other European countries.  It could also rise if a Greek default causes investors to flee all major currencies.   On the other hand, the price of gold may not be affected if a default has already been factored in to the price of gold.  Lastly, gold could fall in price relative to the dollar if the dollar is viewed as a safe haven against a shaky Euro currency.

While we’re not economists, we pay attention to macroeconomic events that could impact the price of gold, silver, and platinum, and how it may potentially affect coin prices. There are convincing arguments for buying or selling gold, silver, or platinum coins at this time, and we’ll hope that regardless of your intentions, you’ll contact Atlanta Gold and Coin Buyers for all of your coin buying or selling needs.  We offer among the most competitive rates in the industry, whether you’re buying or selling coins, and provide unparalleled customer service.  Give us a call today at 404-236-9744 and let us earn your business!

 

 

Tony Davis
Tony Davis