The impact of the Greek financial crisis on Australian investors

Greece has been in a state of financial crisis since late 2009. Despite imposed austerity measures by the Eurozone over the past six years, the country has been unable to prevent debt from spiraling out of control.

Last week, the Greek government ran a referendum asking its people whether the International Monetary Fund (IMF) and European Central Bank (ECB) should bail them out. 60 per cent of the population voted ‘no’. The result clearly says the people of Greece do not want to be controlled by other powers in the Eurozone.

Changes to the AUD and stockmarket after the Greek referendum

So what do these latest developments mean? And what impact does it have on the Australian market?

The ‘no’ vote does not automatically push Greece out of the European Union. However, there is speculation this may eventuate due to pressures from other European countries such as Germany and France that compensate for the country’s financial failures.

The potential exit caused a worldwide stir in financial markets. The first day the Australian stockmarket opened after the referendum, $35-billion disappeared across a wide range of sectors as investors withdrew funds in fear of collapse.

The S&P/ASX 200, All Ordinaries index and the Nikkei fell by 2 percent, and dollar values rapidly declined. The AUD dropped to 76.3 US cents – the lowest it has been since 2009. In addition, all four major Australian banks weakened by 1.27 per cent. Given that Australian banks heavily rely on finance from the Eurozone, this is no surprise. Such trouble puts Australian markets at risk.

Gold stocks thriving amongst financial crisis chaos

Despite the alarm, one particular investment has flourished: gold. Since the referendum, mining stocks have increased in value – some up to 5.65 per cent.

The move to invest in gold is due to its relative immunity to market fluctuations. In comparison, gold has become a sure-bet, a safe haven for investors. Gold does not require any country to guarantee its value – its worth is independent of such economic volatility. Furthermore, it does not require any interest payments. Gold also retains value over time. It is a limited resource and is recognised as a universal form of currency.

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