Crisis in Rome Affects Gold Prices Worldwide – Gold Market Analyst

© AP Photo / Mike Groll, FileIn this Tuesday, July 22, 2014, file photo, gold bars are stacked in a vault at the United States Mint, in West Point, N.Y.
In this Tuesday, July 22, 2014, file photo, gold bars are stacked in a vault at the United States Mint, in West Point, N.Y. - Sputnik International
Italy’s current fiscal policy has been condemned in Brussels and Vienna. This, however, is not only decisive for EU economic development but also affects the price of gold. According to Dimitri Speck, a gold market expert, “national debt growth often affects the price of gold.”

"In Italy, we have a situation where since the introduction of the euro, the real economy has dropped very significantly," the expert said. As compared to some other European economies, Italy has barely grown, while other large EU economies (such as Germany or France) grew. "Of course the problem is also political. In other words, votes are given to parties that push for more public debt and a stronger budget deficit."

A coalition of the populist parties the "5 Star Movement" and "Lega Nord", which is considered particularly critical of the EU, is currently governing in Rome.

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On Monday, the German weekly magazine Der Spiegel published an article headlined "A black week for Italy." "Italy in autumn: investors are pulling out capital, stock market values are falling, the cost of public debt is rising — and a fundamental row with the EU seems inevitable," the article says.

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The European Commission had earlier sent a letter to the Italian government where it sharply criticized the draft budget for 2019. The letter said that Rome wanting to increase its public debt by another 2.4 percent of the GDP "blatantly" violates EU rules and causes "serious concern" throughout Europe. According to media reports, Rome is obliged to respond to the EU at the beginning of this week.

"Southern Europe Puts Pressure on Brussels"

This trend will continue, Speck believes. "The pressure on Brussels and Berlin from Southern Europe will be increasing as the national debt increases." This could also negatively affect inflation.

"One must remember one thing," the expert emphasized, "Italy is economically much larger than Greece. And Greece was already a problem." The Italian crisis could be another financial disaster for EU leaders in Brussels. "If the whole thing degenerates into a new eurozone crisis, private savings are in acute danger throughout the area."

According to Speck, although this scenario is not quite real yet, it is still possible.

How Italy's Crisis Affects the Price of Gold

"We are heading for stronger public debt," the Munich gold market expert stated. And Italy is playing a huge part in that process. "Greater public debt is a positive factor for gold prices. We could see that in the 70s." In other words, the price of gold is likely to rise even further.

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Since Italy's current debt is much larger than Greece's, it also has an impact on the price of gold. "If investors run away from Italian government bonds in the direction of gold, then we'll see very different prices."

Currently, the price of gold is around €1,064 per ounce; at the end of September, it was only about €1,030. In the meantime, the Italian financial crisis began to take shape.

Headwind from Brussels and Vienna

At a meeting scheduled for Tuesday in Strasbourg, EU leaders will spell out the last warning to Italy. According to Der Spiegel, EU Commission President Jean-Claude Juncker and his Economic and Monetary Affairs Commissioner Pierre Moscovici "seem to be in a hurry."

The warning will give Italy's Interior Minister Matteo Salvini (Lega Nord) and Minister of Economic Development Luigi di Maio (5 Star), "three weeks to adapt their budget to EU rules."

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Even Austria's Chancellor Sebastian Kurz (ÖVP), so far a loyal supporter of the new government in Rome, has already publicly criticized Italy for its fiscal policy.

"I don't understand Italy," quoted him as saying. Too high a public debt is "dangerous for all. Austria is unwilling to stand for the debts of other states, while these states consciously cause further uncertainty of the markets."

Views and opinions, expressed in the article are those of Dimitri Speck and do not necessarily reflect those of Sputnik.

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