LAWRIE WILLIAMS: Italian referendum : Gold confounds - again

I suppose we should have expected it after the Brexit vote and the Donald Trump US Presidential vote result, but yet again a plebiscite, whose result would normally have been expected to give a significant boost to the gold price appears to have had the opposite effect.  This time it was the Italian referendum which saw a significant defeat for would-be reformist Prime Minister, Matteo Renzi, and his as-promised subsequent resignation.  True, as with the Trump and Brexit votes, once it became apparent which way the results would go, the gold price spiked upwards, but then it was brought down sharply as global markets opened giving further fuel to the conspiracy theorists claims that the financial and governmental elite is working in concert to suppress the global gold price.

The problem for gold is that strength in the yellow metal’s price is generally seen as recognition that the global economy is indeed in a parlous 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, perhaps of epic proportions, destroying wealth, and for the latter it would damage the carefully orchestrated perceptions that all is well with the global economy, despite plenty of indicators that this is not the case. 

Modern day politics is all about perception.  If people can be led to believe that all is well they will continue spending at levels that will indeed help the economy.  In the U.S. for example there is plenty of evidence from non-massaged statistics, that the average person is worse off than they were a few years ago – in some cases substantially so.  Yet we have just seen a consumer spending splurge on Cyber Monday which has broken all records.  This is obviously unsustainable, but how long will it be when this perception that all is well with the world is just a myth is understood by the majority of the general public?

In part the three votes highlighted above may also signify that this comfortable existence may indeed be on the way out, albeit just the beginning.  All three are being seen as votes against the establishment, but in no case has the majority been large enough to carry much more than 50% of the vote (less in the case of the Trump victory) so there is still a very substantial number of people out there apparently still happy with the status quo.  The ‘protest vote’ will have to grow much further if we are to see any serious perception change.

Part of the underperformance of gold against expectation 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 applecart and precipitate an Italian banking system meltdown with a correspondingly adverse impact on the whole European banking sector to which the Italian banks are severely in debt.  But the resultant dollar strength has been shortlived, while gold has remained around $12 down on its Friday close – despite Shanghai trying to give it a boost with a pm gold benchmark price, as calculated by kitco.com, of $1,198.11 – over $20 higher than the Globex spot price at the time.

05 Dec 2016

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com