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Gold News Monitor: Greece and Its Creditors Fail to Reach Deal in Riga

April 28, 2015, 8:25 AM Arkadiusz Sieroń , PhD

Eurozone finance ministers held talks on the Greek debt on Friday in Riga, Latvia. Greece failed again to reach a deal. What does it mean for the Greece’s situation and the gold market?

In February, Greece secured the Eurozone bailout extension for four months. It was agreed that Greece would get the last tranche worth €7.2 billion of a €240 billion rescue package received in 2010, but only if it provided a comprehensive list of economic reforms. As some analysts had been predicting ahead of meeting, Greece failed to do it.

It seems that Eurozone creditors are losing patience with Greece over the lack of progress in negotiations and some of them suggested discussing the plan “B”. Nobody has stated so far, at least officially, how the plan “B” should look, but the most important thing here is that the default scenario is no longer completely unthinkable.

This pessimism among Eurozone finance ministers is understandable. The time is running out, since the next possible date for a deal could be May 11, when the next Eurozone finance ministers’ meeting is held, just one day before Greece owes €770 million to the IMF. We should not forget that Greece owes also €203 million to the IMF on May 1 and that on May 8 there is €1.4 billion worth of Treasury bills maturing.

Therefore, the uncertainty over the Greek crisis is rising. On Monday, Greek Prime Minister Alexis Tsipras reshuffled his team handling talks with European and IMF lenders, granting Greek Finance Minister Yanis Varoufakis a less active role in the negotiations. More and more analysts are pointing out that we can expect capital controls in the nearest future as pressure is building on the government in Athens to start thinking about such steps in order to stop the deposit outflows from its banks. For example, Citi economists said last week: “In our view, a last-minute agreement on a new program (and additional funding) without capital controls or a government default remains plausible. But it is similarly plausible that capital controls will be imposed in Greece or a government default takes place before an agreement is struck or that no agreement will be reached”.

The rise in uncertainty over the Greek crisis should be supportive of the gold market. Indeed, some analysts even believe that the relationship between the Greek government bond yield and the Eurozone break-up risk is more reliable than between gold and the greenback. Thus, the key takeaway is that the Greek problems are being aggravated, which should increase the safe-haven demand for the yellow metal and rise gold prices.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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