Italians overwhelmingly rejected Prime Minister Matteo Renzi’s proposed constitutional reform on Sunday, and as a result, Renzi is resigning. Defeat of the reform proposal is a victory for the opposition Five Star Movement (M5S). Polls show M5S has gained popularity and is well positioned if a new election is called. The most important point for investors is that M5S wants Italy to get out of E.U. budget restrictions and abandon euro. Before the vote, the smart money was moving into gold. Now that the results are in, where is it heading?

The market reacts

The chart starts from the time Italy referendum results came in and compares euro futures, a euro ETF FXE, gold futures GLD,  and S&P 500 futures SPY,

Please click here for the chart.

As the euro started to move up, stocks followed. At the same time, gold started going down.

Performance chase

The chase for performance is on. A large number of money managers are lagging their benchmarks this year. Such money managers have every incentive to buy on the slightest dip to catch up to their benchmarks before the year end.

Looking back

After Brexit and Trump, stocks went up and gold went down. Now investors are conditioned to do the same thing after the Italian referendum. This is backward looking. Typically, money is made by looking forward and not backward. However, due to the performance chase by money managers, driving while looking in the rear-view mirror instead of through the front windshield is likely to work until the year end…Read more at MarketWatch

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