US dollar gold prices hovered near seven-month highs above $1,780 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 euro zone 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 Sept. 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.