2016 is a year of democratic upsets, and surprise victories in the U.K and U.S may be premonitions of things to come. This time the focus is on Italy, a nation whose December 4th referendum could lead to another banking crisis in Europe and send precious metals prices through the roof.
Matteo Renzi, the center-left prime minister of Italy, has proposed a constitutional reform referendum and pledged to resign if it doesn't go his way. The referendum seeks to streamline the Italian political system and reduce gridlock. The changes are sweeping and would reduce the Italian Senate from 315 seats to 100 as well as dramatically reducing its power over the legal process. The Senate would be relegated to only having a say in the most important issues - constitutional reforms and EU treaties.
This referendum is important because the prime minister of Italy has stated his intention to resign if it passes. The resignation of Renzi would be a clear populist victory much like Brexit and President Trump.
Italian voters have many of the same concerns felt by voters in the U.K and the U.S: immigration, Euroscepticism, and sluggish economic growth. Many observers believe that the resignation of Renzi will open the door for the anti-establishment Five Star Movement (M5S) - a party that has expressed a desire to leave the Euro.
However, this fear may be overblown; the majority of Italians are happy with their current monetary system and an exit is unlikely.
Geopolitical Uncertainty and Gold
According to several polls, the anti-establishment vote is up by 8 points, and this suggests the referendum is likely to pass; however, there are conflicting reports, and the future outcome of this vote is uncertain.
What seems more certain is, however, the weakness in the Italian banking sector - an industry that may be negatively affected by an unfavorable vote in the Italian referendum. Italian banks hold 290 billion euros in bad debt. Italian debt is around 1/3rd of all bad debt in the Eurozone. Problems in the Italian banks could spread throughout Europe and lead to another financial crisis. Gold investors are hedged against this risk.
Predicting the Referendum’s Aftermath: