How Will the Potential Italian Banking Crisis Affect Gold Investors?

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The Pure Gold Company

13/12/2016

In a year of big news it’s been easy to miss the smaller financial and political crises that are happening at home and abroad. Distracted by the Brexit referendum and constitutional crises in America, the news media has missed a similarly pressing concern in Italy.

There was limited press coverage of the Italian referendum on December 4th, a complex constitutional question that sought to amend the Italian constitution, grant new powers to parliament and amend the division of powers between Italy’s various administrative entities and the state. The referendum was also seen as a vote of confidence in Italy’s Prime Minister, and by extension the already-precarious Italian economy.

‘No’ won the referendum by 59%-40%, and now Italy’s debt-laden banking system is in trouble. Worse, should the Italian banking system collapse, it risks destabilising the European Union and the Eurozone altogether. Italian banks have been struggling under the weight of billions of euros of bad debts for decades, and they will require extensive government bailouts and investor confidence to raise the money necessary to repair their fortunes. The crisis of confidence in the government and subsequent fall in investor confidence this could cause will make it harder for many of Italy’s largest banks to raise the capital necessary to stabilise themselves.

On the day of the referendum, gold prices climbed nearly 1% in some markets, approaching U$ 1,190.80 an ounce. Given that the referendum was liable to cause political uncertainty regardless of its result (On ‘yes’ the Italian government would have been changed beyond recognition, while on the ‘no’ vote the prime minister Matteo Renzi has resigned and confidence in the government has dropped to an all-time low), many Italian investors will be looking for a safe haven for their finances to ride out the current political crisis, and gold might just be the answer they are looking for.

 

On the bright side

Following the referendum, however, the situation in Italy seems more stable than one might think. The currency markets fell and the gold markets rose in Europe in advance of the vote, but even with the promised change in government, the possible political chaos has failed to materialise. For now, the gold price has remained relatively low compared to predictions, with the UK gold price dropping slightly over the referendum period, although it climbed once again on the 7th . There’s still the looming spectre of an impending banking crisis, however – Italy’s financial woes aren’t over yet, and the EU and the Eurozone aren’t out of the woods either. If Italy suffers a major financial crisis the Euro will be devalued, leading to further losses of confidence in the ailing European Union.

The knock-on economic effects of this instability will directly influence your investments and finances, which casts the unexpectedly mild immediate effects of the referendum result as an opportunity. While the market prices remain comparatively low, it’s a good time to invest in physical gold and silver, either to ensure long-term financial security and minimisation of risk through use of gold as a safe-haven or for short-term profit trading on physical gold as a commodity when potential future uncertainty results in rising gold prices.

Whatever the purpose of your investment in physical gold, it would be prudent to act sooner rather than later. The Pure Gold Company offers physical gold and silver as well as gold for investment in SIPPs and pensions. Contact our advisers for consultation on the benefits of physical gold investment.

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Whatever the purpose of your investment in physical gold, it would be prudent to act sooner rather than later. The Pure Gold Company offers physical gold and silver as well as gold for investment in SIPPs and pensions.

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