Gold bulls – beware of Greeks bearing gifts!
TDC note – I’m going with Andy Hoffman on this one, but Mr. Williams, makes a valid point. by Lawrence Williams, MineWeb The prospect of a Syriza victory in the Greek elections next week has been gold price supportive, but beware – it’s not a foregone conclusion. Some of the recent positive action in the gold price has been due to fear of a Syriza win in the Greek election next week and a possible new government’s potential for cutting imposed austerity measures, defaulting on its financial commitments and, ultimately, for the country being forced out of the Eurozone. It would be the first Eurozone domino to fall and there are worries that if Greece goes, others may follow. The attractions of the monetary flexibility of utilising one’s own currency rather than being forced to work with a currency, the Euro, the value of which is largely controlled by nations with much bigger, and more stable, economies, is strong regardless of the actual costs incurred in making the change – which would be enormous. For a country like Greece with its enormous tourist industry, a weaker currency – probably far weaker if it should exit the Euro – could give this very significant sector an enormous boost, albeit hugely increasing the cost of imports at the same time. Investors seem to be assuming that Alexis Tsipras’ Syriza party will win the election, but it is only perhaps 3-5% ahead of Antonis Samaras’ New Democracy party – the party of the ruling government, although the latter has only been able to rule in coalition with the much smaller Pasok party. That suggests that the election result is perhaps too close to call and even if the pollsters findings are borne out, Syriza would still probably have to find its own coalition partner to gain a majority in the Greek parliament, and the attitude of the coalition partner to Syriza’s proposed anti-austerity programme could be key. Syriza leader Tsipras has also been rather more circumspect in his proposals through the campaign. Once considered totally anti-Eurozone, his more recent statements do not appear to contemplate leaving it – perhaps as a sop to the electorate which appears to be largely in favour of remaining in the European Community, although one doubts the majority are aware of the potential financial ramifications of either remaining in or out. Meanwhile the New Democracy campaign is playing on people’s fears of ‘Grexit’ – the prospect of Greece leaving the EC should Syriza win the election. From the gold point of view though, a Syriza victory would lead to continuing uncertainty as to exactly what path Greece would take. Would it default on its commitments or not? The probability is that it would providing it can find sufficient support in parliament for the policy, but then would Germany, and the other Eurozone leaders, force Greece out of the single currency system, as it has said it would, or would some kind of compromise prevail? Continuing uncertainty over a possible Grexit would probably remain positive for gold. On the other hand, should New Democracy win the election, which is certainly still possible, that could well knock the gold price back as it would take the Greek exit and its possible ramifications off the agenda for the time being. So it may be best not to count on a Syriza victory yet. However there are other things also helping drive the gold price upwards. It appears to be following its recent pattern – the price going up in Asia overnight – it hit $1,245 last night, before being brought back down a few dollars at London opening. But there are plenty of other geopolitical uncertainties sitting out there at the moment and the fact that the gold price has been moving upwards during Asian dominated hours suggests that Chinese demand in particular is less sensitive to price than many would have us believe. 2015 looks like turning into a year of uncertainties on the geopolitical front which will be gold positive and if demand from China stays up and that from India picks up again during the current year, the supply/demand equation will also be gold positive. But so much will continue to depend on the machinations in the futures markets as to what path gold will take throughout the year and market reaction to the likely start of U.S. interest rate increases later in the year. But overall, it’s probably best not to count on a Syriza overall success in the Greek elections. If it is defeated the gold price could take a nasty knock. If it wins, without an overall majority, it may be forced to mitigate its stance on ending austerity and a Greek default – and even if it wins outright, political expediency may also force it to rein in its projected policies. Tsipras has already been modifying his stance through the election campaign.