Economists said the downgrade wasn’t a surprise as it puts Moody’s rating in line with Standard & Poor’s take on Portugal. Both agencies have negative outlooks on the rating.Two year sovereign notes now yield 8%. The reason given for the downgrade was poor growth prospects and the minority government's difficulty in enacting its latest austerity package. The main opposition party has already turned the thumb down on the package.
But the cut comes amid a clash over the Portuguese government’s effort to impose a further round of austerity measures, fueling long-running speculation that slow growth and rising borrowing costs will eventually leave Lisbon with little choice but to seek assistance from the European Union and International Monetary Fund.
This announcement did little for the metal this morning, like other items that would normally have a positive effect on gold. They might, however, have clipped off a further fall that otherwise would have taken place. Although not explicitly bullish, this downgrade does remind the gold market that the Eurocrisis is still ticking over.