Italian Referendum And Gold

Italians said “no” to constitutional reforms in Sunday’s referendum. What does it mean for the gold market?

The closely-watched Italian referendum about constitutional reforms was rejected by 59.1 percent of the voters. Have Italians just voted for hell? Not necessarily. Although many analysts considered the outcome of referendum as another vote – after Brexit and Trump’s victory – against political establishment, the reality is a bit more complex, as the proposed changes in constitution were quite controversial. Therefore, Italians actually have chosen a status quo against unclear and radical reforms in the constitution.

Anyway, what does the referendum imply for the world? Well, not much, at least so far. Surely, Italian Prime Minister Matteo Renzi would resign in the near future (until parliament approves the budget for 2017), leaving Italy in political limbo. However, political crises and technocrat governments are a cakewalk for Italians. There are some worries that new elections will be held soon and Beppe Grillo’s Five-Star movement, which is anti-Euro, will come to power. We cannot preclude early elections, but there would have been elections anyway in early 2018. And the electoral law may not be very supportive for the populists. The truth is that much more dangerous for the global economy is the Italian banking crisis. The constitutional referendum does not change significantly the outlook for banks.

This is probably why, generally speaking, markets shrugged off the results. Similarly to the U.S. election and post-Brexit trading, there was an initial panic and the Euro slumped to a 20-month low on the Italian no-vote, but markets quickly recovered these losses and the European common currency actually gained on Monday. The price of gold ended the U.S. session modestly lower, which seems to be a bearish signal (we discuss whether that is indeed the case in today’s Gold & Silver Trading Alert), as the shiny metal is often negatively correlated with the U.S. dollar and positively linked to the Euro. The lack of positive response may be a release of stronger-than-expected U.S. service-sector data for November (the non-manufacturing ISM Index rose from 54.8 percent in October to 57.2 percent last month), which did not help the gold market for sure.