Gold as Protection From Italy’s Exit

Italy’s exit from the EU could spark a financial crisis for the global market

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According to a recent article on Kitco, Italy is the latest country to flirt with the idea of an exit from the Eurozone due to the population’s discontent with various EU policies. Should this scenario materialize, the global market could turn towards a new financial crisis with gold as the most sought-after asset.

In the past, Greece threatened its own split from the EU amid a financial crisis that gripped the country. Likewise, British citizens infamously voted in favor of a “Brexit” in 2016, a process which has yet to be finalized.

Italy’s growing distaste for its EU membership stems from a perceived damaging effect that the adoption of the euro has had on the nation’s economy reports the article. In contrast to other EU member nations like Germany and Greece, Italy has seen its real GDP per capita shrink since the euro was unveiled in 1999.

The rise of populist Italian parties such as the League and Five Star Movement reflects the average citizen’s opinion that EU laws and regulations, both fiscal and otherwise, have done more harm than good to the country. In their recent report, consultancy firm Rosa & Roubini Associates underlined the significance of this trend and warned that an Italian exit from the EU could bring about the next global crisis.

The article states that falling equity prices, spikes in short- and long-term rates and a rise in credit default spread premia are just some of the consequences if Italy proceeds with its departure. Brunello Rosa, CEO of Rosa & Roubini, explained how Italians might still be reluctant to leave the Eurozone and abandon its shared currency system. Over time, however, anti-EU sentiment could grow bolder, driven in large part by the country’s strong exports which give Italy a noted presence on the global market.

While there haven’t yet been any official calls for an Italian exit, the article writes that the issue could come to the forefront in September as the country drafts a new budget to be sent to Brussels. The introduction of a flat tax system, a minimum income policy or another reform of the pension system are all issues that would place Italy’s new government at odds with the EU.

In response, Rosa advised investors to adopt a risk-averse approach and strengthen their defensive positioning for as long as the threat of an Italian exit remains. Rosa highlighted gold as a key asset which, aside from being risk-free, allows investors to hedge their bets and protect themselves against possible corrections in any asset class.