Gold rose early Monday on haven demand after Moody’s Ratings announced late Friday that it was slashing the top U.S. government credit rating.
The agency reduced the rating to Aa1 from Aaa, citing the federal budget deficit. Moody’s had been the last of the major ratings agencies to keep U.S. sovereign debt at its highest rating level.
The move raises questions about the U.S. economic outlook and the deficit. The uncertainty draws those seeking a hedge against uncertainty. The dollar also weakened on the rate reduction, making gold a more attractive alternate investment. But a ratings cut is likely to boost the yields on U.S. Treasury debt, and that could eventually cause investors to seek returns in bonds rather than stocks or even gold. Gold typically comes under pressure when bond yields rise.
June gold futures tumbled 4.7% last week to settle at $3,187.30 an ounce on Comex after the front-month contract fell 1.2% Friday. Bullion increased 5.4% in April after gaining 11% in March and adding 0.5% in February. It’s up 21% so far this year. The metal rose 27% in 2024, its biggest annual gain since 2010. The June contract is currently up $45.40 (+1.42%) an ounce to $3232.60 and the DG spot price is $3232.10.
“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said in a statement. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”
Last week, gold tumbled the most since November on a weekly basis on signs that tensions between the U.S. and China – the world’s two largest economies – were easing. The two countries had agreed to lift some of the more stringent tariffs on their goods.
Investors continued to watch the economy for signals on monetary policy. Earlier this month, the Federal Reserve left interest rates unchanged again at 4.25% to 4.50%. Most investors tracked by the CME FedWatch Tool now expect the Fed to begin interest rate cuts in September, not the next two scheduled policy meetings in June and July. Lower interest rates are typically bullish for gold, making the yellow metal a more attractive alternate investment.
The Fed held rates at policymakers’ meetings this year after reducing them three times in 2024. The central bank began raising interest rates in March 2022 to fight inflation, ultimately imposing increases of by 5.25 percentage points before beginning rate cuts last year. Previously, the Fed had kept rates at 5.25% to 5.50% for a year.
Various Fed officials are expected to make remarks this week.
Front-month silver futures lost 1.7% last week to settle at $32.35 an ounce on Comex after the July contract decreased 1% Friday. Silver dropped 5.2% last month after advancing 9.9% in March and retreating 2.4% in February. It gained 21% in 2024. The July contract is currently up $0.116 (+0.36%) an ounce to $32.470 and the DG spot price is $32.36.
Spot palladium fell 2.2% last week to $965.00 an ounce after declining 1.3% Friday. Palladium fell 4.9% last month after rising 7.3% in March and retreating 10% in February. Palladium dropped 17% last year. The current DG spot price is up $3.90 an ounce to $968.50.
Spot platinum retreated 1.6% last week to $993.50 an ounce after shedding 0.7% Friday. Platinum retreated 3.1% in April after increasing 6.7% in March and sliding 4.7% in February. Platinum lost 8.4% in 2024. The DG spot price is currently down $0.30 an ounce to $994.90.