China Bound? Could Greece Sell Its Gold Reserves?
Eleventh-hour negations between Greece and its creditors passed Thursday with no resolution in sight but one European Bank said that the beleaguered nation has one more Hail-Mary shot, but it’s only a short-term solution and could exacerbate the situation.
In a note published Friday, German-based bank Commerzbank hypothesized that Greece could sell some of its gold reserves to meet its debt obligation by the end of the month; however, the bank also recognized that this is an unlikely scenario.
“According to the latest [International Monetary Fund] statistics, the Greek central bank holds 112.5 tons of gold, worth €3.8 billion at current market prices. This equates to a good 1% of Greek government debt and 66% of Greek foreign currency reserves. Greece could in theory meet the €1.5 billion payment due to the IMF at the end of the month by selling 47 tons of gold from its reserves, if no agreement is reached with international creditors on the payment of bailout funds,” the analysts said in their research note.
They also noted that this scenario, an emergency sale of Greece’s gold, could be one reason why gold hasn’t benefited from increased risk aversion sentiment.
Although it is an option, the analysts added that Greece would be ill-advised to sell its gold reserves as this would probably be only a one-shot deal and the country has other debt obligations on the horizon. They noted that by July 20 Greece has to pay back a €3.5 billion bailout loan to the European Central Bank.
“Furthermore, selling gold would deprive the country of its only really valuable reserves, which could be put to good use at a later date, perhaps to stabilize a new currency if Greece exits the euro. We think it is very unlikely that Greece is willing to go down this path,” they said.
Even if Greece does have to sell its gold, in an effort to find a short-term solution, Commerzbank said that they think it would have only a minor impact on the price.
Greece is a signatory on the fourth Central Bank Agreement, which was made so central banks can coordinate their gold transaction, avoiding market disturbances. With no actual plans to sell its gold, an emergency sale would have to be with another central bank, analysts explained. They added that Greece could also sell its gold directly to the IMF.
“In this case the direct impact on the gold price would presumably be small,” they said.
Another option for Greece would be to use its gold to create a swamp agreement, similar to steps Argentina took earlier in April when they finalized an agreement with Citibank to swamp some of their gold for $1 billion.
“This has the attraction that the country could buy the gold back at a later date when the liquidity situation has improved – after the transfer of a further tranche of EU aid, for example,” they analysts said “However, this would only give the country a few weeks breathing space…”
Commerzbank also thinks a sale would positive for gold because it would demonstrate its use as a safe-haven to be used in times of crisis, increasing the yellow metals acceptance.
By Neils Christensen |
