What about Greece?
A “Grexit” refers to Greece exiting the European Union. The market has been concerned about a Grexit for some time now. Greece has been debt-ridden for years. To get Greece out of debt, international institutions need Greece to practice austerity. However, in the January 2015 elections, the citizens of Greece voted the Syriza party into power. Syriza is an anti-austerity party. Alexis Tsipras, Syriza’s leader and now Greece’s prime minister, vowed to end austerity measures. With non-compliance to austerity measures, creditors won’t lend to Greece.
This is leading to deadlock in the negotiations between Greece and its creditors. If this deadlock continues and Greece is unable to pay its dues, then the country may opt out of its European Union membership.
Earlier in February, a deal was secured to extend Greece’s bailout by four months on the condition that Greece would implement economic reforms. Concerns regarding Greece’s exit from the European Union led investors to gold in January.
Gold’s safe-haven status
Greece’s meeting with its creditors is fast approaching. Greece is supposed to make a payment to the International Monetary Fund by the end of June. Gold is considered a safe-haven asset during periods of political or economic instability. Any concerns about Greece exiting the European Union could spark fresh fears of instability. As a result, investors could decide to park their money in gold.
If Greece does something to increase its risk of being ousted from the European Union, it will be positive for gold prices (GLD) and gold stocks. These stocks include Eldorado Gold Corp. (EGO), Agnico Eagle Mines (AEM), and AngloGold Ashanti (AU). The VanEck Vectors Gold Miners ETF (GDX) invests in these stocks. EGO, AEM, and AU form 13.6% of GDX’s holdings.
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