Posted on February 20, 2015
Gold prices are slightly lower this morning while crude oil and the dollar index are flat. Stocks are moving slightly lower as well, as concerns over Greece take a toll on risk appetite.
Greece and the EU have thus far been unable to reach an agreement regarding the country’s bailout terms. The situation is going down to the wire, and the longer there is no agreement in place the more risk aversion will likely set in. Talks between Greece and the EU have apparently not accomplished much, and the clock is ticking.
Germany is holding the line regarding Greece and its obligations, and appears unwilling to bend on the issue. Greece had requested a six month extension of its bailout program that Germany will not agree to. Germany is looking for improvement in Greece’s reform commitments, and if it does not get them the likelihood of a Greek exit from the EU would appear to increase dramatically.
While today was said to be the deadline for Greece to reach a deal to remain solvent, it would not be surprising to see leaders working throughout the weekend to try and reach a last minute deal. Should Monday arrive with no signs of progress, market volatility could potentially increase significantly and perceived safe haven assets such as gold and precious metals could potentially benefit.
After making new all time highs recently, stocks have traded mostly sideways this week. Stock investors may be holding off until there is more clarity regrading Greece and the EU, and should a deal be reached equities may begin a new leg higher into all time high territory. On the other hand, lack of a deal could potentially give investors reason to sell and stocks could potentially pullback.
It is unknown how a Greek exit from the EU would affect financial markets. Investors have been pulling deposits from Greek banks, and the possibility of a large scale run on Greek banks is certainly a possibility. There is talk circulating today of putting capital controls in place to stem such a run, and if no agreement is reached in the very near future such measures could potentially be implemented.
Higher stocks and a higher dollar index have possibly acted as resistance to higher gold prices. Stocks have gone mostly sideways this week, while the dollar has been unable to make a new high. Should large scale profit taking occur in either market, gold and precious metals could potentially benefit as investors reallocate capital.