Political Situation Causing Greek Investors to Focus on Gold

With the Greek elections drawing to a rather shocking end, Greek investors are leaving the euro for gold to prevent getting caught up in the political turmoil. With the recently elected government showing no particular interest in adhering to the European council, and economic recovery efforts leading nowhere, it is understandable that the Greek people are turning to metal to preserve their wealth.

With the Greek elections drawing to a rather shocking end, Greek investors are leaving the euro for gold to prevent getting caught up in the political turmoil. With the recently elected government showing no particular interest in adhering to the European council, and economic recovery efforts leading nowhere, it is understandable that the Greek people are turning to metal to preserve their wealth.

In addition, reports from various sources, including the UK Royal Mint, have confirmed that the amount of gold purchased has increased significantly in the last few months. Though gold seems a possible solution for investors, it only makes matters worse for the government as public spending decreases.

Greek Euro Tragedy

Reports from the Bank of Greece indicated that the sale of gold coins increased from 7,857 sovereign coins for Q4 2014 to 5,847 gold coins in just January. This clearly suggests that some Greeks believe that the single currency policy will not last and Greece may soon stop using the euro. In addition, the rising tensions between the government and foreign creditors over the international bailout program suggest that the new radical left government may not favor the euro as much as the old government.

So do the Greeks believe socialism is the answer?

The Fear of Losing Money

On his address to the parliament, the newly elected Prime Minister announced that he wanted to ditch the existing funding program, which stops at the end of February.  Greek bonds and stocks fell on the news.  In addition, any new currency may lack necessary value based on his stance with the European council.

These factors, and the current economic situation, are driving investors to gold.  The centralized banks of Greece, the UK Royal Mint, and the independent online retailer coinInvest.com reported that the sale of gold coins rose significantly around the election period, and to record high levels post-election, but refuses to furnish actual traded values.

Consequences of Emptying Banks

Though experts suggest that it is common for people to invest in gold during times of political instability and economic recession, they also believe that such a trend can lead to dire consequences, especially for a country like Greece.

Greek banks doled out nearly 15 billion euros close to the election period and an additional 11 billion euros in January alone; such massive withdrawals do not just put banks and governments in trouble, but also disrupt commodity prices.  Gold prices rose 4.7% and the extra cash used for additional purchase could drive it higher.

The conversion of currency to gold, though beneficial to gold investors, slows the money flow and reduces expenditures causing further economic deterioration.  At least for now, the government is trying to reassure investors that it will not leave the EMU.