Gold declined today as the dollar, an alternative asset to the yellow metal, was on the rise thanks to renewed concerns about Europe’s ability to resolve its fiscal problems, which the euro and boosted the grenback’s safe haven appeal.
Standard & Poor’s yesterday warned that 15 members of the 17-national euro zone could see their credit ratings cut if the EU fails to make changes to the EU treaty to tighten budget discipline within the monetary union.
Among these 15 countries were Germany and France, the euro zone’s two largest economies and the main contributors to aid packages for struggling countries. Both currently have top notch AAA ratings.
S&P went further and today placed the rating of Europe’s bailout fund, the European Financial Stability Facility (EFSF), under review for a possible downgrade, which would also depend on the outcome of Friday’s summit.
Germany and France have agreed to make joint proposals to change the EU treaty, which would make it possible to penalise countries that fail to keep their budget deficits within certain limits.
In addition, gold was pressured by reports that demand for the yellow metal from the world’s largest gold consumer India was weak despite the ongoing wedding season.