What Will Happen to Greece and Gold? - GoldSeek.com

What Greek Elections Now Mean

Greece cannot form a government so expect elections within a month. We have come to the point where the bad news is out –the markets are telling us that Greece will likely leave the Eurozone and possibly the euro as their 10-year debt continues to trade at 27%. They may not pay out €436 million to creditors and keep it, fearing they will not get the next bailout tranche. Reneging on the obligation also would constitute a default triggering derivatives contracts and clauses requiring the settlement of other un-swapped bonds. Meantime the country has no government to make the choice. The country may run out of money by early July. The standoff has reignited concern that Greece will renege on pledges to cut spending as required by the terms of its two bailouts negotiated since May 2010

This blazes the trail for Spain to follow by asking, first, for a bailout. Portugal, Ireland, and potentially Italy are looking more and more each day like Greece. We’re now looking at the worst possible scene.

Whether this will happen or not is not the point for investors in gold and silver. The fact that markets are aware of this situation and are, in fact, discounting it is much more pertinent. If the euro doesn’t collapse and if these nations leave the Eurozone, then do not expect to see the Eurozone fall apart but to be much stronger having jettisoned the weak members. This would strengthen the euro enormously and send it back up towards the €1: $1.40 area. We do not think this is being discounted yet. The old rule that when the news is at its worst is the historic turning point of markets. With gold and silver moving with the euro, traders may keep the precious metals moving with the euro as it rises. This is where we are now.

Consequences in Greece

We have been witnessing a massive flight of capital out of Greece, out of the banks, i.e. Soc. Gen., that are large holders of Greek debt and even Greek money leaving to hide in the stronger member’s banks in the Eurozone. Any exit of Greece from the Eurozone would have to see their banks re-capitalized. Under the Maastricht Treaty, which formed the Eurozone, any member state can impose Exchange Controls for a short period of time while that country remains in the Eurozone. In Greece, that could happen just to close the exits and prevent a further run on the banks.
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