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Will gold rise if Greece exits the Eurozone?

Part of investing is learning to spot a good opportunity, and one I have my eye on right now is Greece’s impending debt default and/or possible departure from the Eurozone.

The politics and macroeconomics of the situation are outside the scope of this article, but I think readers can safely draw two conclusions:

  • Eurozone nations want to keep Greece in the Eurozone
  • Greece will be economically better off in the Eurozone

A Greek exit from the Eurozone and reversion to using the Drachma currency does not appear to be in anyone’s best interests.

However with radical leftists in power and limited popular support for economic reforms, maybe, just maybe, Greece will decide to bite the bullet and default on its debts and/or exit the Eurozone.

The impact for markets will be profound in the short term, and this is where you and I come in.

It appears a given that Greece can’t fund all of its payments to the IMF this month, and the way I see it, either a deal will be reached with creditors, Greece will default on a payment, or Greece will elect to leave the Eurozone. Should there be a default or withdrawal, here’s a brief sketch of what could happen:

  • Gold will rise

Gold always rises during volatility, and if you currently hold companies like Newcrest Mining Limited (ASX: NCM) you might expect to see a rise in value over the coming weeks.

I wouldn’t rush out to buy gold because rising interest rates in the US will put downwards pressure on it, and gold is ultimately a commodity that can’t grow your profits organically.

  • The Euro will fall

Euro nations are all-in on Greece, with Germany in particular carrying massive amounts of Greek debt on its shoulders. Without having to take on the risks and leverage associated with foreign exchange (forex) investing, you can gain relatively direct exposure to the AUD-EUR relationship through the BetaShares Euro ETF (ASX: EEU).

This Exchange Traded Fund (ETF) is designed to mirror the currency relationship; if the Euro rises 10% against the AUD, this ETF should rise 10% too. Of course this is an investment to buy after the Euro falls against the AUD, because the value of this ETF will fall too.

  • Euro shares will fall

Not only will the Euro fall, but Eurozone markets will take a beating. An increasing number of local brokers are offering international trades, but a good place to start is the Australian iShares Europe ETF, or ISHEUROPE CDI 1:1 (ASX: IEU). This might sound all ‘French’ to you, pardon the pun, but IEU tracks a collection of 350 stocks diversified by region and is a great way to catch a widespread fall in Euro markets.

Assuming the Euro region avoids complete economic catastrophe, which it should, investors could generally expect the Eurozone to rebound in the next few years, and both the IEU and EEU ETFs are a great way to gain that exposure.

Alternatively if you’re not feeling quite that adventurous, there are a number of great ASX-listed shares that have exposure to earnings in the region. Among the biggest are shopping centre guru Westfield Corp Ltd (ASX: WFD), Domino’s Pizza Enterprises Ltd. (ASX: DMP), and infrastructure stock Macquarie Atlas Roads Limited (ASX: MQA).

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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