Gold rises on U.S. credit downgrade

Gold rises on U.S. credit downgrade

Gold rises on U.S. credit downgrade, edging higher early Wednesday as the dollar and Treasury yields fell after Fitch Ratings relegated the U.S.’s top-level AAA credit rating to AA+.

The downgrade reduced confidence in the economy and made gold attractive to investors as a haven asset. The yellow metal also has some support from speculation that the Federal Reserve is nearing the end of its interest rate-increase cycle.

Front-month gold futures fell 1.5% Tuesday to settle at $1,978.80 an ounce on Comex, as the December contract dropped 1.1% in the first two days of the week. Bullion rose 4.1% in July after losing 2.7% in June and retreating 0.9% in May. The metal gained 5.7% in the first half of the year after falling $2.40 in 2022. The December contract is currently up 2.4 (+0.12%) an ounce to $1981.20 and the DG spot price is $1945.30.

The Fitch downgrade – announced after markets closed Tuesday – was predicated on the threat the Jan. 6, 2021, insurrection poses to U.S. governance, CNN reported, citing an unidentified person familiar with a Biden administration meeting with Fitch representatives. Lawmakers also risked the country’s first ever default earlier this year because of a standoff between lawmakers over raising the debt ceiling. They ultimately reached an 11th hour deal.

Increased speculation that the Fed may pause or end interest rate hikes after the release last week of the June personal consumption expenditures price index, the Fed’s favorite inflation measure, also boosted gold. The central bank has raised rates by 5.25 percentage points since March 2022. A pause or end to the interest rates hikes would be considered bullish for gold because the metal becomes less attractive to investors when rates go up.

Investors are now awaiting Friday’s release of the U.S. monthly jobs report for July for indications on whether the rate hikes have had an impact on the labor market – and whether it will be resilient if more rate increases are necessary. 

About 82.5% of investors tracked by the CME FedWatch Tool are betting that the Fed will keep its federal funds rate unchanged in September at 5.25% to 5.50%. Just 17.5% expect it to raise rates another 25 basis points. Most investors tracked by the tool are betting that it will then hold at that rate at the remaining meetings this year. 

September silver futures lost 2.6% Tuesday to settle at $24.33 an ounce on Comex. The most-active contract decreased 0.7% in the first two days of the week. Silver gained 8.5% in July after dropping 2.4% in June and decreasing 6.5% in May. It retreated 4.2% in the first half of the year after rising 3% in 2022. The September contract is currently down $0.031 (-0.13%) an ounce to $24.295 and the DG spot price is $24.18.

Spot palladium dropped 3.4% Tuesday to $1,253.00 an ounce and is down 0.9% so far this week. Palladium rose 3.6% in July after falling 9.5% in June and tumbling 9.3% in May. Palladium plummeted 31% in the first half of the year after losing 5.7% in 2022. The current DG spot price is up $4.90 an ounce to $1262.00.

Spot platinum slid 2.1% Tuesday to $938.00 an ounce and has retreated 0.4% so far this week. Platinum gained 5.2% in July after falling 9.3% in June and retreating 7.4% in May. Platinum dropped 15% in the first half of the year after surging 10% in 2022. The DG spot price is currently down $6.10 an ounce to $934.70.

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