Italy's political instability could be having an impact on the world-wide price for what might be the world's more desired metal: gold.
When the price of gold started rising amid unusual volatility earlier this month, many analysts began speculating that Italy's political problems were to blame. Gold is what economists refer to as a "safe haven" investment, meaning demand for the metal often increases in periods of perceived risk.
With the Italian government on a collision course with the European Union (EU) over budget matters, the yield on Italian government debt -- a very specific measure of perceived risk in a country -- began to climb. Yield have been rising since the start of the month, and in trading Monday, the yield for ten-year Italian bonds topped 3.6 percent for the first time in more than five years.
The EU has criticized Italy for plans to run a larger-than-planned deficit in the country's 2019 budget, adding to what is already the bloc's largest public debt, and the second largest stated as a percentage of gross domestic product.
"The sudden return of Italy's huge public debt to the headline has been a factor in rising precious metal prices," Adrian Ash, research director at London-based BullionVault, said in a research note. BullionVault noted the prices of gold rose even as the U.S. dollar strengthened, an unusual circumstance since gold prices are traditionally quoted in dollar terms.
Earlier this month, gold climbed to 1,208 U.S. dollars per ounce (28.3 grams), its highest level in three weeks and above the average gold price for the last 50 days, something that hadn't happened since April. Trading volume and volatility were unusually high, BullionVault said.
In Italy, analysts said that Italy's political situation was likely one of several factors, along with the possibility of difficult "Brexit" deal as Britain prepares to leave the European Union.
"It's natural that some investors turn to gold in moments of uncertainty," Giuseppe De Arcangelis, a political economist at Rome's La Sapienza University, told Xinhua. "But the situation in Italy is probably one of a several of factors."
Mario Seminerio, an investment manager and economic commentator agreed, calling the circumstances this month "an anomalous combination of circumstances."
There is one way, however unlikely, that Italy's internal turmoil could have the opposite impact on gold prices -- driving them downward. That could happen if the country ever began selling some of its gold reserves to pay down debt.
Italy has the world's third largest gold reserves, with just under 2,500 metric tons of the precious metal. Only the United States and Germany have more. At current market values, the gold is worth around 100 billion U.S. dollars, or around double the total proposed government budget deficit for 2019.
Some government watchdogs have warned Italy's anti-establishment government could seek to sell some gold to help finance government programs without adding to the deficit. For its part, the government has given no indications it planned to do that, and both De Arcangelis and Seminerio said the move was unlikely, noting the gold is controlled by the Bank of Italy and not by political officials.
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