As we believed, Greece and its creditors (EU, IMF and ECB) have finally reached a deal to extend a bailout program. What does it change in the Greek drama and what are the implications for the gold market?

European finance ministers came to the agreement on Friday after weeks of uncertainty. If Greece had not obtained new support, its solvency (including the banking system) and membership in the Eurozone would be at stake. The key point is that the financial rescue program was extended by four months (the exact number was not provided, however previous talks mentioned €10-11 billion), in return for a commitment to "ensure the appropriate primary fiscal surpluses" (again, no exact number was specified), honor its debt obligations, and conduct "broader and deeper structural reforms", which Greece and its creditors will agree by the end of April. The Greek government has to submit a preliminary list of proposed economic reforms by today night. The list has to be approved by the Eurogroup and could cause further tensions (the minimum wage, pension system and privatization seem to be the hottest issues).

The agreement is rather general and sketchy, which leads us to the opinion that it is only a means of buying time. It is true that the deal eases tensions and the risk of Grexit, which presumably was the reason behind the recent declines in gold prices. However, it is only a pause in the drama, because in June and August Greece must repay €6.7 billion to the European Central Bank, which would be rather impossible without a fresh bailout program.

To sum up, the deal between Greece and its creditors eases the uncertainty about the future of the Eurozone, which would be negative for the gold market in the short run. However, the drama is not over (Greece got only a bridge loan to buy some time) and the whole situation may be repeated in four months. Therefore, in the medium term the Hellas' problems and the ongoing negotiations (e.g. on the proposed economic reforms) remain supportive for gold prices.

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

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