|
U.S. DOLLAR gold prices hovered near seven-month highs above
$1780 an ounce for most of Friday morning's London trading – a few
Dollars up on where they started the week – while stocks failed to hold
early gains after a analysts interpreted Spain's budget as "laying the
groundwork" for a formal bailout.
Silver prices eased to $34.73 per ounce after
failing to breach $35, while other commodities were broadly flat and US
Treasury bonds gained.
Euro gold prices meantime remained close to all-time
highs hit yesterday.
"The debt crisis in the Eurozone has escalated
again," says today's commodities note from Commerzbank.
"Gold should therefore remain in high demand as
a store of value and alternative currency. Silver has also been pulled
upwards in gold's slipstream."
Spain unveiled a "crisis budget" Thursday
that included a third year of public sector wage freezes and an 8.9% cut in
ministry budgets.
"This is a crisis budget aimed at emerging from
the crisis," said deputy prime minister Soraya
Saenz de Santamaria.
Olli Rehn, European
Commissioner for Economic and Monetary Affairs, said the budget goes beyond
what his institution required.
"It's positive that Spain is laying the
groundwork for a bailout," says Ayako Sera,
Tokyo-based senior market economist at Sumitomo Mitsui Trust Bank.
A Spanish bailout would pave the way for the
European Central Bank to buy Spain's government debt on the open market,
through its Outright Monetary Transactions program announced earlier this
month.
Spain will use a decade-old reserve fund to pay for
increases in pension payments, newswire Bloomberg reports.
"The reserve fund is there to be used,"
said budget minister Cristobal Montoro, adding that
it is "politically very important" to maintain pensioners'
purchasing power.
"Politically, they couldn't do anything
else," agrees Jose Ramon Pin, professor of public administration at IESE
business school.
Tens of thousands of demonstrators have taken to the
streets of Madrid this week to protest austerity measures, in scenes that
have been echoed in Portugal and Greece.
Ten-Year Spanish government bond yields remained
below 6% this morning, after breaching that level earlier in the week for the
first time since the ECB announced its OMT program on September 6.
The Euro meantime regained some ground against the
Dollar this morning following a week of losses. Euro gold prices meantime
remained near yesterday's record high of €44,377 per kilo (€1380
per ounce) trading in a tight range this morning above the previous record
hit last September.
Spain is also expected to publish the result of
banking sector stress tests later today, including estimates of likely levels
of recapitalization required.
"They have to be seen to be coming clean and
being realistic," reckons Ron D'Vari, former
head of structured finance at BlackRock.
"There’s no right answer for how much
capital the Spanish banks will need," adds Madrid-based Nomura analyst Daragh Quinn, "but they at least need to exceed
people's expectations...the real experience of the banks shows that losses
just go up to the extent that the economy gets progressively worse."
Earlier this week, ratings agency Standard &
Poor's said it expects Spain's economy to shrink by 1.4% next year – a
sharper contraction than the 0.7% fall it forecast back in July. Fellow
rating agency Moody's is set to publish its review of Spain's rating later
today, with several analysts predicting it will downgrade Spain to junk
status.
Elsewhere in Europe, French president Francois Hollande is expected to unveil France's toughest budget
in three decades as the government attempts to hit its 3% of GDP deficit
target for 2013.
Here in London, it was announced today that the
British Bankers' Association will no longer be responsible for the London
Interbank Offered Rate (Libor), following the scandal of so-called
rate-rigging that has "engulfed more than a dozen institutions on three continetns", the Financial
Times says.
"Today we press the reset button,"
Financial Services Authority managing director Martin Wheatley said Friday.
"Libor needs to get back to doing what it is
supposed to do, rather than what unscrupulous traders and individuals in
banks wanted it to do."
Libor is used as a benchmark rate and is referenced
for more than $300 trillion worth of contracts worldwide, the FT reports.
|
