Another round of talks between Greece and its creditors collapsed on Sunday evening. How can this affect the current crisis and the gold market?

This is becoming quite dull. Last week, the IMF walked away from the table, while yesterday Greek negotiators left the European Commission only 45 minutes after entering when their new economic reform proposal (does anybody count them?) was rejected as inadequate to continue negotiations. On the one hand, it does not mean anything, because many talks had failed before previous bailouts, but the deals were finally reached. On the other hand, it reflects that attitudes had really shifted and patience towards Greece in Germany is running out. The same applies to Greece’s stance towards creditors, especially that Greece has nothing to lose by saying no to creditors. According to Wolfgang Münchau, the acceptance of the Troika’s proposal would lower Greece’s GDP by 12.6 percent over four years. It would elevate the Greek debt-to-GDP ratio to around 200 percent, being a suicide for the economy and the political career of Alexis Tsipras. Contrary, if Greece defaults, France and Germany alone will lose around €160bn.

The protracted negotiations increased fears of default, Grexit and capital controls, especially since depositors are constantly pulling cash from the banks. According to Daniel Gros, director of the Centre for European Policy Studies think-tank in Brussels, we are a few weeks away from possible capital controls, similar to those imposed in Cyprus. Nobody knows for sure how they would look like, but they could include some cash withdrawal limits, foreign transfer controls and special taxes, probably during weekends or special bank holidays. And it seems that capital controls would most likely be a prelude to a Grexit, implemented to buy some time for the transition to a new currency.

Summing up, the collapsed Sunday talks are good news for the gold market, as this event raised the risk of default and possible Grexit, which should support the gold prices. Indeed, gold edged up initially today; however, a stronger U.S. dollar exerted downward pressure. This week would be very interesting for the gold market, as we have a Federal Reserve policy meeting on Wednesday and the meeting of Eurozone finance ministers (considered the latest deadline for reaching a deal with Greece) on Thursday.

Thank you.

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

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