Gold Price Surges as Italy Scares Global Markets

The value of gold spiked on Tuesday after Italy unveiled that its 2019 budget will overshoot European Union (EU) guidelines, setting the stage for a clash between Rome and Brussels.

Gold Returns Above $1,200

Investors cut ties to riskier assets and entered the relative safety of gold on Tuesday, triggering a sharp increase in both the spot price and in the futures market. Gold for December delivery, the most actively traded futures contract, rose $18.90, or 1.6%, to $1,210.20 a troy ounce on the Comex division of the New York Mercantile Exchange.

Silver futures for the same month climbed 39 cents, or 2.7%, to $14.90 a troy ounce.

Gold’s breakout follows months of choppy trading conditions for the yellow metal. Since bottoming at $1,184.00 a troy ounce in mid-August, gold prices have fluctuated between $1,187.00 and $1,216.00 an ounce.

Much of the downward pressure in recent months can be attributed to a stronger U.S. dollar. Commodities such as gold are priced in greenbacks, which makes any appreciation in the U.S. currency a disincentive for holders of other currencies. However, gold and the dollar traded in the same direction on Tuesday. The DXY dollar index was up 0.2% to 95.50, its highest since Aug. 23.

Italy Triggers Global Tension

Investors switched to risk-off mode this week after Italy announced that its forthcoming budget will run at 2.4% of gross domestic product (GDP), exceeding the maximum threshold set by the EU. The expected deficit in Rome’s 2019 budget not only triggered a negative market reaction, it prompted some angry comments from European institutions. Italy has until Oct. 15 to submit its proposed budget to the European Commission.

Italy currently holds the second-highest debt in the 19-member Eurozone at €2.3 trillion ($2.67 trillion).

On Monday, Italy’s Deputy Prime Minister Luigi Di Maio accused the EU of “playing terrorism with the markets” by criticizing the new government’s budget. The populist coalition has since threatened to leave the euro, triggering renewed anxiety in the market.

Claudio Borghi, who heads economic policy for the ruling Lega party, implied on Tuesday that Italy’s days in the euro bloc could be numbered.

“I am truly convinced that Italy would solve most of its problems if it had its own currency,” Borghi said in a radio interview, as reported by CNBC and Reuters.

Borghi’s comments triggered a spike in bond yields. The yield on Italy’s 10-year bond hit 3.40% early Tuesday, the highest in four-and-a-half years.

Italian share prices and the rest of Europe’s main indexes were also in the red. The Eurozone Stoxx 50 Pr settled down 0.8% on Tuesday.

Featured image courtesy of Shutterstock. 

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi