Italian Referendum: Gold Confounds—Again

by Lawrie Williams

Recent events (the Austrian vote, the Italian referendum) that could have boosted the gold price have had the opposite effect. As with the Brexit and Trump’s election, gold spiked up but came down sharply, giving fuel to the conspiracy theorists’ claims that the financial and governmental elite is working in suppress the global gold price.

Italian Referendum: Gold Confounds—Again

Vittoriano in Rome Altar of the Fatherland Waving Flags

Strength in gold is seen as recognition that the global economy is in a dangerous state, and neither the big money nor the politicians want to see this interpretation gain credence. For the former it would mean a market collapse, destroying wealth, and for the latter it would damage the perception that all is well with the global economy, despite indicators that this is not the case.

Modern day politics is about perception. If people believe that all is well they will spend at levels that will help the economy. In the US there is plenty of evidence that the average person is worse off than they were a few years ago. Yet there was a consumer spending splurge on Cyber Monday that broke all records. This is unsustainable, but when will the myth that all is well with the world be understood by public?

A comfortable existence may be on the way out. There are votes against the establishment, but in no case has the majority been large enough to carry much more than 50% of the vote, so there are still a substantial number of people who are happy with the status quo. The protest vote will have to grow if there is to be any serious perception change.

Part of the underperformance of gold after the Italian result has been put down to dollar strength, given a sharp fall in the euro, as the result is seen as having the potential to upset the euro and precipitate an Italian banking system meltdown, with an adverse effect on the whole European banking sector, to which the Italian banks are severely in debt. But the resultant dollar strength has been short lived, while gold has remained around $12 down on its Friday close.

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