Gold prices dropped moderately on Thursday after making large gains on Wednesday. Poor U.S. economic data coupled with another sell off in the U.S. dollar index and stock markets looks to continue through this week. Gold last reported today a.m. is $1200.40 down $8.70 and silver is $16.72 down 38 cents.
In the EU, all eye’s are on Greece as it is scheduled to make good on it’s loan payment to the IMF April 9. Bank of America, one of the Fed “Big Six” banks has given us some insight on what may happen should Greece default. Unless Greece is guaranteed more money, to repay debt, it will default.
The sequence of events would be as follows:
1) IMF Staff immediately sends a cable urging the member to make the payment promptly; this communication is followed up through the office of the concerned Executive Director. The member is not permitted any use of the Fund’s resources, nor is any request for the use of Fund resources placed before the Executive Board until the arrears are cleared;
2) After 2 weeks, management sends a communication to the Governor for the member, stressing the seriousness of the failure to meet obligations and urging full and prompt settlement.
3) After 1 month, the Managing Director notifies the Executive Board that an obligation is overdue.
It is once the Executive Board has been notified of the missed payment that a critical sequence of events could unfold. According to the master financial assistance facility agreement between the EFSF and Greece, the notification of an overdue payment to the IMF would constitute an event of default for the EFSF loans. Such a scenario would risk the EFSF cancelling all or part of its facility, or even declaring the principal amount of the loan to be due immediately. In turn, the acceleration of EFSF loans linked to the PSI exchange would trigger a default event for the PSI GGBs. Even if Greece repays the IMF loan of €458mln on April 9, note that they also have to repay €200mln on May 1 and €763mln on May 12.
Same applies to ECB interest due. Greece also has to pay €274mln of interest on GGBs in April. Assuming it pays €194mln interest to private bondholders on 17-Apr, it will be left with the €80mln interest payment due to the ECB on 20-Apr. The prospectus of the bond held by the ECB indicates a 30-day grace period on interest payments, before a default is declared. Note that this is also the case for the privately held PSI GGBs.
The European Union and the IMF have available only 2 options. They can place Greece on permanent funding status or throw them out of the EU. Both choices have disastrous costs for all parties involved. Regardless of pomp and swagger before media camera’s they know the situation is dire. Greece in its current economic condition cannot even sustain itself monetarily. How then, in the world can they afford to repay 320 billion in debt?
Every nation in the world is following the economic pattern of Greece. When perpetual debt becomes rule of the day, calamity awaits. Greece is just a few years ahead of the rest of us. Their “debt can” has reached the end of the road a little sooner than others.
Placing our trust in a system of fraud and debt is a dangerous position to be in. Why are central banks and world governments purchasing record amounts of gold? If stock markets and currencies are sound investments, why bother with physical gold?
It’s not too late to protect a portion of our assets with real physical gold and silver. Gold, Silver, Platinum and Palladium are all available for your IRA. Give us a call at 1-800-577-3195 for details on how you can own precious metals.
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