(Kitco News) – Gold prices remain below $1,950 an ounce, but are having a positive start to the week as investors react to Moody’s negative outlook on US debt.
Late on Friday, after North American markets had closed, the ratings agency reaffirmed America’s AAA credit rating, but changed the outlook on the United States’ credit rating from “stable” to “negative”.
At the start of the Asian session on Sunday, December gold was last trading at $1,945.90 an ounce, up 0.42% on the day.
Moody’s said domestic political instability was a factor in the downgrade. Congress has been unable to pass legislation to fund the government beyond 17 November. Another potential government shutdown has put the nation’s growing debt back in the spotlight as interest rates remain elevated.
“In the context of higher interest rates, without effective fiscal measures to reduce government spending or increase revenues, Moody’s expects U.S. budget deficits to remain very large, significantly weakening debt affordability,” Moody’s said in a statement. “Continued political polarisation in the US Congress increases the risk that successive administrations will be unable to reach consensus on a fiscal plan to slow the decline in debt affordability.”
The downgrade also comes after the US Treasury sold $24bn of 30-year bonds in a disappointing auction.
Analysts noted that as a result of the lousy auction, primary dealers, who buy up supply not taken by investors, had to accept 24.7% of the debt on offer, more than double the 12% average over the past year.
This is the second debt outlook this year. In August, Fitch downgraded the US long-term debt rating to AA+ from the top AAA. Fitch announced the downgrade two months after the US narrowly avoided defaulting on its debt.
Commodity analysts have been bullish on gold, partly because of the US debt problems. In a recent interview with Kitco News, Sprott Inc. managing partner Ryan McIntyre said the potential for a credit risk event due to sovereign debt concerns could help push prices well above $2,000 an ounce.
Jesse Felder, founder of the Felder Report, said US fiscal problems are only going to get worse and will be a major factor in gold’s rise through 2024.
