Germany's 'Debt Explosion' Knocks Gold 5% Off Euro Record
Wednesday, 3/05/2025 17:08
GOLD PRICES rose for Dollar investors but sank against a surging Euro on Wednesday as Germany's "debt explosion" to boost defense and infrastructure spending as the USA stops supporting Ukraine spurred a crash in European bond prices and drove a jump in the region's stock markets.
Silver rose even in Euro terms, with the more industrially useful precious metal – needed in defense as well as solar energy and electronics systems – at $32.50 and €30.23 per Troy ounce.
Markets had been pricing another 1/4-point cut to Euro interest rates from the European Central Bank for Thursday's March meeting, but borrowing costs for Germany – the 20-nation currency union's largest economy – leapt by that much today in the bonds market.
Betting on US Fed interest rates, in contrast, pointed lower again after Treasury Secretary Scott Bessent said the White House is "set on bringing interest rates down", taking the market's consensus forecast for Christmas 2025 down to 3.57% per annum.
Extending this week's plunge on estimates that
the world's largest economy is already in recession, that's the lowest such market forecast for the Fed funds rate since before Donald Trump won November's US presidential election.
The Euro currency leapt by more than 1% versus the Dollar for the 3rd day running, crushing gold prices to a 1-month low beneath €2714 per Troy ounce.
That put bullion for German, French, Italian and other Euro investors down 5.0% from
mid-February's fresh record gold highs.
Frankfurt's Dax index of German corporate shares in contrast rose to fresh all-time highs, leaping by 3.5% to more than reverse Tuesday's steep Trump tariff sell-off and led higher by construction, industrial and defense stocks.
Barely a week after saying
there would be no "quick reforms" to Berlin's 'debt brake' rules on government borrowing, last month's election winner Friedrich Merz of the CDU party said "the rule for our defence now has to be 'whatever it takes'," and also proposed infrastructure spending worth half-a-trillion euros to 2035.
Berlin's borrowing costs today leapt by 1/4 of a point to 2.75% per annum on 10-year bonds, the sharpest rise in Bund yields since the Covid Crisis of early 2020.
"A real debt explosion awaits Germany," says newspaper
Die Welt. "The public is worried:
Who is going to pay for all of this? Is Germany's sacred AAA credit rating now in jeopardy? And can growth make up for it all?"
With the European Union proposing to borrow a further €150 billion to fund what Commission President Ursula von der Leyen calls "rearmament...in the most momentous and dangerous of times", France's 10-year OAT yield also hit a 16-month high.
Like the Euro, the UK Pound today hit 16-week highs versus the Dollar as the left-leaning Government of Keir Starmer announced cuts to welfare payments a week after cutting the foreign aid budget to help fund a surge of military investment.
That held the UK gold price in Pounds per ounce unchanged for the week so far at £2270.
US Dollar gold prices meantime touched 1-week highs at $2929 per Troy ounce while the S&P500 stock index slipped 0.5%, taking it 2.0% lower for 2025 to date, as Washington's 10-year borrowing costs traded 0.1 percentage points above yesterday's 4-month low of 4.14% per annum.
Home-buyers in the bottom 50% of US income earners have been
"crushed by high interest rates" during the Democrat Biden administration, Trump's finance minister – hedge fund manager Scott Bessent – added in last night's interview with Fox News.
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