Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Closing Report: Gold and Silver Gain with Oil
By: Chris Mullen, Gold Seeker Report

Gold Stocks Remain in Downtrend but Uranium Stocks on the Cusp of New Bull Market
By: Jordan Roy-Byrne CMT, MFTA

Sunsets in the Land of U.S. Dollar Hegemony
By: Michael Ballanger

Precious Metals Sector: It’s 2013 All Over Again
By: Przemyslaw Radomski, CFA

Rugby Initiates Drilling at San Antonio Gold Project, Colombia
By: Rugby Mining Limited

Merk Research - US Equity Markets
By: Merk Research

Silver Looks Poised To Move Soon
By: Hubert Moolman

Which Precious Metals Are Likely To Be Better Investments During The Next Market Crash?
By: Steve St. Angelo

Wall Street Keeps Cool As Tariff Threat Grows
By: Rick Ackerman

Silver Guru Video: “The End of Empire and End of Fiat Currencies”
By: GoldCore

 
Search

GoldSeek Web

 
Will Stars Shine on Gold?


 -- Published: Tuesday, 6 March 2018 | Print  | Disqus 

Major blow to the EU! The populist Five Star Movement won about one-third of the votes in the Italian general elections. It’s another negative shock for the European establishment. Will these stars shine on gold?

 

Five Stars Movement Triumphs

We live in strange times. To be a hairstylist, you need a license. But you can become a politician being just a comedian and telling jokes. We refer here to Beppe Grillo who co-founded the Five Star Movement a decade ago. Although the party was initially perceived as a harmless prank, it quickly became a serious threat for mainstream politicians in Italy. In 2013, it reached 25.55 percent of the vote, introducing 109 out of the 630 deputies in the Parliament. It would obtain even more members, but it refused to form a coalition. Fast forward to 2018 – the Five Star Movement won about one third of the votes. It means that it will likely be the largest single party – and the pillar of the next legislature.

 

Another Hung Parliament?

However, a center-right bloc – which includes the Forza Italia party of former Italian prime minister Silvio Berlusconi famous for his sex parties – attracted about 37 percent of the votes. The center-left coalition built around the ruling Democratic party, led by another former prime minister Matteo Renzi, got only about 23 percent of votes. The results imply that no party won 40 percent of the vote, which would have allowed it to form a government outright. So we could have a hung parliament (especially that the Five Star Movement in principle opposes a coalition with other parties), which would add to the political uncertainty about Italy – and the whole Eurozone.

 

Eurosceptics Win Again

The results also mean that the eurosceptic and nationalistic parties have strengthened their hands. After Brexit, Trump’s victory, Le Pen’s advance to the second round of the French presidential election, populists took Italy. For example, the League, which has campaigned on an anti-immigration stance, ended with a higher share of the vote than Berlusconi’s Forza Italia. It was a negative surprise for Italy’s financial markets. Stocks declined, while the yields on sovereign debt rose.

 

Implications for Gold

The Italian election could affect the gold market via two channels. First, it could increase the safe-haven demand for the yellow metal, as the vote strengthened the populist parties. As a reminder, Italy is the Eurozone’s third-largest economy, struggling with a high debt-to-GDP ratio (see the chart below) and a vast amount of non-performing loans. The triumph of eurosceptics could add to the uncertainty about the economic future of Italy.

 

Chart 1: Italy’s government debt to GDP ratio from 1988 to 2018 (as %).

http://www.goldseek.com/news/2018/3-6as/1.png

 

Second, the results may also affect the EUR/USD exchange rate and, thus, the price of gold. So far, the euro has declined, but rebounded quickly, as one can see in the chart below. However, given the surprising results, we could see declines in the short run. It would be negative for gold prices.

 

Chart 2: EUR/USD exchange rate over the last three days.

http://www.goldseek.com/news/2018/3-6as/2.png

 

If history is any guide, the currency channel should eventually outweigh the safe-haven channel. Look at the chart below, which shows gold prices around the 2017 French presidential election.

 

Chart 3: Gold prices (yellow line, left axis, London P.M. Fix, in $) and the EUR/USD exchange rate (red line, right axis) from March 2017 to February 2018.

http://www.goldseek.com/news/2018/3-6as/3.png

 

As one can see, the price of gold rose before the first round of the French presidential election at the end of April, while the euro weakened. But when Macron advanced to the second round, the price of gold dropped, while the euro rebounded. In May, when Macron finally won, the yellow metal rallied in tandem with the euro.

 

What does it mean for the current gold market? Well, we could see some safe-haven bids in the shortterm (perhaps until the new government forms), but the overall effect in the longrun should be detrimental, at least if we agree that the populist’s victory in the third largest economy in the Eurozone is bad for the currency. Given that gold has benefited recently from the rebound in the euro and the weakness in the dollar, if the EUR/USD declines, gold may suffer. Indeed, gold prices declined yesterday, as the chart below shows.

 

Chart 4: Gold prices over the last three days.

http://www.goldseek.com/news/2018/3-6as/4.gif

 

However, investors should not forget that populists are strong not only in Europe, but also in the U.S. President Trump does what he can to weaken the U.S. dollar (think about the recent tariffs and fiscal deficit). Moreover, the Eurozone economy is healthier today than one year ago. The strong economy makes investors more tolerant of uncertainty. It means that markets may shrug off geopolitical factors and focus on macroeconomics. Please note that investors are used to political turmoil in Italy – actually, forming a government is a national sport in that beautiful country. Stay tuned!

 

Thank you.

 

Arkadiusz Sieron

Sunshine Profits - Free Gold Analysis

 


| Digg This Article
 -- Published: Tuesday, 6 March 2018 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2018



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.