Gold Seeing Modest Gains after Italian PM Concedes Defeat In Referendum

By Neils Christensen

December 04, 2016 19:56

(Kitco News) - Volatility in the gold market is seeing a minor rise as Italian citizens voted down proposed reforms to the constitution, causing the euro to slide to its lowest point in almost two years.

gold is seeing modest safe-haven demand after Italy's referendum on constitutional reform failed SundayAccording to early returns, people have voted 59% to 41% against the referendum, with 69% of the population casting ballets. Near the start of the Asian trading session, Prime Minister Matteo Renzi, the driving force behind the referendum conceded defeat and announced that he was stepping down, which caused the euro to nose dive.

The increased volatility has created some momentum in gold as prices are seeing positive gains in the early start of the trading session; however, prices are off their sessions highs, having to deal with a stronger U.S. dollar. February gold futures last traded at $1,182.20 an ounce, up 0.37% on the day.

In an interview with Kitco News Friday, ahead of the Italian referendum, Jessica Fung, analyst at BMO Capital Markets, warned that the results of the referendum could end up being neutral for the yellow metal as the market balances between safe-haven demand and a strong U.S. dollar.

While gold is seeing only moderate demand following Renzi’s announcement, Simona Gambarini, commodities economist at Capital Economics, said that she sees long-term potential for gold as most markets are underestimating the risked posed by a no vote.

She said that she sees a prospect of higher gold prices in 2017 as geopolitical uncertainty rise as a result of populist movements.

Along with rising political uncertainty, a major economic threat is for the entire euro zone is with the Italian banking system;  Renzi  was promoting a market solution to recapitalize some of the country’s banks but this proposal could end up in limbo with the country having to transition to a new government leader.

Media reports have said that up to eight Italian banks, holding a high level of bad loans, risk failing if a solution isn’t found.

There is also growing demand specifically in Europe. Gold in euro terms is modestly higher Sunday evening. Kitco.com gold currency charts show that gold is up 0.37% against the euro, last trading at €1,115.95 an ounce.