Renzi Resigns – End of the EU? – How does Gold and Silver React?

Video transcript:

Today is Monday 5th December 2016 and we are briefly commenting on Italy’s Referendum result and what it could mean for gold and silver prices.

As suspected, and commented on in our last video on this subject entitled ‘Could Italy’s referendum destroy the EU and cause gold and silver prices to rise?’ published on 20th November, Italian Prime Minister Matteo Renzi has resigned after suffering a heavy defeat.

With most ballots now counted, the No vote leads with 60% against 40% for Yes. The turnout was nearly 70%, in a vote that was seen as a chance to register discontent with the Prime Minister and the Establishment.

Mr Renzi told reporters "Good luck to us all." After meeting with his Cabinet he will then tender his resignation to the Italian President this afternoon.

As a reminder, essentially Matteo Renzi staked his political future on his attempt to change Italy's cumbersome political system. He wanted to strengthen central government and weaken the Senate. His opponents argued that the reforms would give the Prime Minister too much power. The electorate has clearly agreed.

However one could also quite easily draw the conclusion, that the referendum was more than a vote on constitutional reform, but a chance for the people to reject establishment politics.

The European Political elite viewed Prime Minister Renzi as the only Premier left in Europe with a vision for the EU's future. Angela Merkel is too busy crisis-managing while much of France is in the thrall to National Front Eurosceptics – ‘Front National.’

Italy is the euro currency's third largest economy and it's in for a turbulent time. We should not forget that there are more controversial and unpredictable votes to come in 2017: in France, Germany, the Netherlands and perhaps in Italy too.

It is unlikely that Italy will pull out of the EU. However the main opposition parties: Five Star and the Northern League although opposed to the Eurozone are not opposed to EU membership itself but this will create its own tensions nevertheless.

Whilst senior EU members are downplaying the prospect of a Euro or EU crisis, there is no doubt that this referendum result will further embolden those parties in other countries who are opposed to EU membership. At worst this is another brick removed from the EU wall or at best one that has become very loose.

Already this morning the euro hit a 20-month low and most Asian stocks retreated. Gold prices in US dollar terms initially spiked to $1188 but has since fallen $12 from its opening to the current $1164. Similar movements happened in Euros with gold now down 8 Euros and in sterling with gold down £9 this morning. Silver movements were similar - initial spikes - but again in all 3 currencies down around 1% on its Friday’s close.

We still have to wait and see how this news is further digested and interpreted by the markets, but if these precious metal falls fail to recover, then we can certainly see gold testing that psychological $1100 floor and silver that psychological $16 floor.

It is quite possible that this news is being discounted to some extent as there is still no imperative for Italy to hold an election quite yet, as the Italian Prime Minister may be asked to hold on until the budget is announced. So perhaps traders generally are doing all they can to ensure the feel good factor continues until at least the end of the year.

Our advice to listeners is to watch what happens to the Banks and their stocks. Many of them are already fragile and interlinked with those across, not only Europe but the Western World. If a banking crisis occurs, contagion may be difficult to control. We are not at this point too worried but we are watching with a slight feeling of concern.

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Disclaimer:

Illuminati Silver owners come from a background of Banking, International Wealth Management and Economics. Having now retired from these worlds we are not qualified to give investment advice. Therefore, this and other productions must not be deemed to be giving such advice and merely represent the personal views of its owners.