Euro Gold Gains as France Faces 'No Confidence' Vote on Deficit Stand-Off
Monday, 12/02/2024 15:42
GOLD PRICED in the US Dollar recovered a 1.0% drop on Monday and neared 1-week highs in Euro terms after France's borrowing costs rose above Greece's for the first time on record as the French Government faced a likely 'no confidence' vote triggered by 'far right' leader Marine Le Pen over deficit spending plans,
writes Atsuko Whitehouse at BullionVault.
China's long-term borrowing costs last week crossed below Japanese government bond yields for the first time, pointing to what many analysts warn could be
a Japan-style 'lost decade' for the world's 2nd largest economy as it struggles to avoid deflation under the burden of a real-estate crash.
Monday's Asian trading saw spot gold prices drop almost $30 per Troy ounce to $2622 as the US Dollar Index – a measure of the Dollar's value against major currencies – climbed 0.5% but held below
last month's 'Trump trades' peak in the greenback.
But gold then recovered that drop, back up at the $2650, while the Euro price of bullion hit its highest since Monday last week at €2529 on further falls in the single currency's FX value, extending its 2.8% drop in November amid growing political tensions in France.
The yield on French 10-year OATS today edged down below 2.90% per annum, still half-a-percentage-point beneath last autumn's 12-year high.
But the yield on Greece's government bonds – which crashed in price during the Eurozone member state's debt crisis of 2010-2013 – also fell to that level as prices rallied, taking Athens' borrowing costs down near new 2.5-year lows and repeating the crossover which briefly happened for the first time last week.
"France's political turmoil is weakening the Euro and favouring the Dollar, which is helping to maintain some pressure on gold," says Rhona O'Connell at brokerage Stone X.
"There's certainly political instability," says another analyst to Bloomberg, "and
French government bonds are pricing that" by falling in value, driving up the yield offered to new buyers and also increasing the cost of new borrowing by the Republic.
"Political instability creates uncertainty. But what is more important is what is France going to do to bring that deficit down?"
The gap between France's central government tax revenues and its spending is projected to reach 6.2% of GDP this year, well above the European Union's official 3% cap.
Monday saw the fragile coalition Government of Prime Minister Michel Barnier – which relies on the tacit support of the hard-right National Rally party – make further concessions to RN leader Le Pen after she threatened to
trigger a vote of no confidence over proposals for a hike to electricity tax and a below-inflation rise in the state pension aimed at cutting the nation's budget deficit.
"A vote against the Government is not inevitable," says Le Pen in an interview with La Tribune published today.
"All Barnier has to do is accept to negotiate."
Barnier instead then chose to activate the 49.3 constitutional clause, allowing his Government to push through draft budget measure without winning parliamentary approval – a political analysts say looks certain to trigger a no-confidence vote in the coming days.
Paris' CAC40 index of leading French corporate stocks lost 0.4% for the day, contrasting with a 0.9% rise in Germany's Dax.
The UK gold price in Pounds recovered slightly, edging up 0.3% to £2086 after making a 1.6% monthly decline in November.
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