Quitaly: EU in Danger- Markets React

Gold

Italy Votes No on Referendum- EU

Tonight, Italy voted “No” on its constitutional referendum, effectively voting no confidence in current PM Renzi’s government. This significantly weakens another pillar in the EU support system. More importantly, it sets the table for other referendums to gain momentum in rejecting the EU and a return to nationalist pride.

Italians Say NO to EU

Markets React

The EU/USD dropped to its lowest levels since early 2015 post vote

Analysts are calling for a drop in the Euro to 1.02 to the USD.

Gold is stronger on the flight to anything not denominated in Euros

interactive chart HERE

Gold spiked higher as news disseminated but has given back much of its gains. Unlike Brexit, this was more expected, and given the recent exodus of hot money, Gold's reaction was muted.

Longer term this is very bullish for Gold

However, as the EU contemplates its next moves, the conclusion will likely be more easy money. This is bullish for Gold as a currency. It is bearish for the Euro not to mention the viability of the EU altogether. The immediate reaction is not the whole story at all. Brexit buyers were hot money who sufferred later. This lack of piling in is a good thing for Gold investors. Do not be surprised if Gold actually sells off from this event as traders close positions in everything.

JPY strengthens vs the EU
Italian Bonds will likely drop further after being weak on Italy’s poor economy prior.

Polls Were Right This Time

While the polls also called for a No vote, after previous polling errors, people were discounting Ital’s polls as “unreliable”. In this case they were very reliable. ING’s Petr Krpata summarized it correctly saying before the vote: “While the market is positioning for the risk of ‘no’ vote outcome, a knee-jerk reaction is still likely to be a lower euro” as it would “underline the upcoming risk” of other elections in Europe.

Bloomberg notes, the scale of the loss and how quickly it happened cast a huge shadow on the fate of the continent headed into 2017.

Renzi Will Resign

RENZI: I HAVE FAILED, BUT HAVE DONE ALL I COULD
RENZI WILL OFFER RESIGNATION
RENZI WILL OFFER RESIGNATION
ITALY 5-STAR LEADER GRILLO TWEETS "THE TRAIN HAS DEPARTED": MNI
RENZI SAYS HE WILL OFFER HIS RESIGNATION TO PRESIDENT
RENZI: MY GOVERNMENT ENDS HERE

Play by Play of Events

Here's a quick timeline from Bloomberg's Marco Bertacche

April 15, 2014: The Senate approves first version of reform, backed by Renzi allies and Berlusconi's party
Jan. 31, 2015: Renzi's candidate is elected president of the republic, prompting Berlusconi to withdraw support for reforms
April 12, 2016: Lower house completes approval, lacking two-thirds majority needed to avoid referendum
Aug. 4, 2016: Highest court accepts referendum request with more than 500,000 signatures from Yes campaign
Sept. 26, 2016: Renzi's cabinet calls for Dec. 4 referendum. Decision is binding

More shortly