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Greece’s Bailout Is Negative for Gold’s Safe-Haven Demand

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Third bailout for Greece

In the latest development last week, Greece did reach a bailout agreement with its creditors. The loan package is worth ~86 billion euros. It’s spread out over three years. It will be funded primarily by the ESM (European Stability Mechanism). In return, Greece will have to apply strict financial austerity and overhaul its economy. There will also be a recapitalization of Greece’s banks. The Greek economy has already been bailed out twice before—in 2010 and 2012.

This will prevent Greece’s financial collapse. It will also lessen the chances of it exiting the Eurozone.

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 Eurozone also supported gold prices in January 2015.

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Impact on gold’s appeal 

As we outlined in Why Gold Is Losing Its Safe-Haven Appeal amid Current Turmoil, the safe-haven demand for gold remained weak amid turmoil in Greece and China. Now that Greece has been bailed out for the third time, the uncertainty surrounding the negative turn of events has lessened considerably. This pushed down the safe-haven appeal for gold.

This will be negative for gold prices (GLD) and gold stocks. These stocks include Eldorado Gold (EGO), Agnico Eagle Mines (AEM), and AngloGold Ashanti (AU). The VanEck Vectors Gold Miners ETF (GDX) invests in these stocks. Eldorado Gold, Agnico Eagle Mines, and AngloGold Ashanti account for 13.60% of GDX’s holdings.

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