This last week saw the makings of a potentially lethal cocktail of geopolitical crises begin to drive world gold prices higher in a sympathetic safe haven, risk-off bid. The political stability of Italy evaporated as their President Mattarella shot down the slate of appointees from the new prime minister and his populist parties. Italian and U.S. bonds began to sharply rise in tandem. U.S. warships also provoked the Chinese by blatantly sailing through (and also operating in) South China Seas waters (in close proximity to disputed islands which) Beijing virulently claims are its own historical territorial waterways.
These latest three geopolitical powder kegs are stark reminders of why you need a gold IRA to help safeguard your retirement portfolios. Gold offers insurance and protection during market turbulence as it has over the last five thousand years of recorded human history. Now is the time to learn more about Gold IRA rollover rules and regulations while you still have time to get into the yellow metal at a reasonably affordable price under $1,300 per ounce.
Italian Political Chaos Driving U.S. Treasuries Higher Alongside Surging Italian Bonds
The biggest story of this past week centered on a dangerous new geopolitical constitutional crisis coming out of Italy. The elections may occurred two months ago back on March 4th, but the results are still unresolved at best. The two triumphant populist parties have been stymied from governing by the stubbornly pro-European Union Italian President Mattarella. He vetoed their slate of appointees for the new prime minister’s cabinet over a disagreement with their anti-EU choice for Finance Minister. This forced the hand of new Prime Minister in waiting Conte, who retaliated by resigning.
The president lost no time in appointing a technocratic replacement named Cottarelli. He is certain to be rejected by the populist party-dominated two houses of parliament. This will lead to new elections being held as early as September 4th. The polls predict that the populists will again emerge victorious and even stronger than ever. It means in three months time we will likely be back facing this same impasse of an Italian president who refuses to certify their victory and give their anti-EU finance minister appointment approval.
The consequences of this unprecedented political infighting among the various branches of Italian government have shaken Italy’s financial markets and rippled around the world already. European core bond yields are rallying hard, most especially in Italy, as this chart below clearly shows:
As the crisis has only deepened in Italy, European bonds are also rising dramatically in sympathy. Risk-off trading has spread around the globe as well. U.S. ten year Treasuries which had stabilized in past weeks are again becoming a safe haven shelter for investors scared of the latest unfolding crisis in Europe. The Italian stock market had declined by a sobering 2.5 percent on the open today. Other regional stock markets have also caught the cold of the third largest economy in the Euro Zone.
It is not only Italy which has investors around the world on edge. Spain’s long-lasting government will face a vote of confidence on June 1st. Between Italian and Spanish political woes, investors’ minds have been taken back to only five years ago when the Euro Zone looked to be in serious existential trouble. This chaos is only good for short sellers of the various financial markets. Portfolio Manager Alessio de Longis of Oppenheimer Funds Inc. warned Bloomberg Television recently that:
“These development are concerning. The market has taken a completely different tone, it no longer believes what the parties are saying. The markets will be really unable to move forward into a different narrative” until the results of the Italian political situation and new election results become clear.
The populist party heads from both Five Star Movement and the Northern League have put forward plans to increase public spending while slashing taxes and implementing a minimum universal basic income. This naturally domestically popular agenda has worried the other main EU country leaders on whether or not Italy will stick to the rules for budget deficits that the Euro Zone enshrines. Italy is saddled with a massive load of public debt alongside a vast assortment of toxic loans on the balance sheets of its many troubled and internationally connected banks.
Long-time European Central Bank Vice President Victor Constancio himself will continue to watch and wait for clarity to emerge from the political and economic chaos of Italy. He opined that:
“We are watching, observing, and analyzing the developments in Italy of course, markets are reacting.”
Yet It’s U.S. Treasuries that Represent the Greatest Threat to Markets Right Now
The growing geopolitical mess coming especially out of Italy is only one of a trifecta of international crises at the moment though. The United States Treasuries are similarly threatening to upset the global economic growth story from last year. The Treasury yields have consistently gained this year so far to achieve multiple year highs over the last weeks and months.
This started out in anticipation of ongoing interest rate hikes from the Federal Reserve and has continued as the Italian situation has spiraled further out of control. ECB Vice President Constancio worried that the real destabilization for global market is:
“Coming presumably from the U.S. where indeed the 10 year bond yields increased and are touching three percent. That has consequences of course for the exchange rate of the dollar, which then impacts emerging markets. That is the main risk for financial stability worldwide, with consequences for (the) euro area too.
The rising Treasury yields are boosting the dollar which has successfully notched a range of consecutive highs for the year 2018 in the past weeks. The greenback is already up more than four percent versus six other major currencies since the conclusion of the first quarter.
This stronger resulting dollar translates to higher borrowing and financing costs for struggling emerging markets and in particular those that boast a large quantity of debt denominated almost entirely in U.S. dollars. Market analysts and observers worry that the growing sell off of emerging markets is upending the once-harmonized growth story for the world from 2017.
The European Central Bank conducted its annual Financial Services Review recently. It found that risks are rising for the euro area. These include a contagion effect from declining worldwide financial asset values, investment fund liquidity risks, weaker profitability for the continent’s banking sector, and fears over the astronomical levels of indebtedness in both private and public spaces alike.
U.S. Warships Operating Near China’s Claimed South China Sea Islands Provokes Outrage in Beijing
China is particularly sensitive about the extensive territorial waters it claims all the way down through the South China Sea. The United States navy has flown in the face of this over the past week as its officials admitted that the Higgins Class guided missile destroyer and a guided missile cruiser Antietam have operated within a mere 12 miles from the Chinese-claimed Parcel Islands.
The ships engaged in operations near Lincoln, Tree, Woody, and Triton Islands there according to the American military. China’s neighbors the Philippines and other countries claim these islets, shoals, and reefs in a long-running, ongoing dispute with the Middle Kingdom.
The move was seen blatantly angering Beijing even as the American President Donald Trump is attempting to cooperate with the Chinese on the situation in North Korea. The recent trade war which the administration has temporarily paused is another reminder of why American military posturing in the region sends the wrong kinds of signals at the moment to angry rivals.
Gold is your first, best, last, and really only historically proven line of defense against the chaos erupting around the world on a weekly basis now. You need to learn what gold goes in an IRA quickly. It is also a good time to take stock of the IRS-mandated and strictly enforced rules on IRA gold storage.