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Gold prices open Sunday in positive territory as markets react to Moody’s negative outlook on U.S. debt

Gold prices open Sunday in positive territory as markets react to Moody's negative outlook on U.S. debt

Gold prices remain below $1,950 an ounce but are seeing a positive start to the week as investors react to Moody's negative outlook on U.S. debt.

Late Friday, after North American markets closed, the rating agency affirmed  America's AAA rating; however, the firm's outlook on the credit rating of the United States was changed to "negative" from "stable."

At the start of the Asian trading session Sunday, December gold last traded at $1,945.90 an ounce, up 0.42% on the day.

Moody's said that domestic political instability is one factor behind its downgrade. Congress has been unable to pass legislation to fund the government past Nov. 17. Another potential government shutdown has put renewed focus on the nation's growing debt as interest rates remain elevated.

"In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody's expects that the U.S.' fiscal deficits will remain very large, significantly weakening debt affordability," Moody's said in a statement. "Continued political polarization within U.S. Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability."

The downgrade also comes after the U.S. Treasury sold $24 billion in 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 for the past year.

This is the second debt outlook this year. In August, Fitch lowered its U.S. long-term rating to AA+ from its top mark of AAA. Fitch announced its downgrade two months after the United States narrowly avoided defaulting on its debt.

Commodity analysts have been bullish on gold in part because of U.S. debt issues. In a recent interview with Kitco News, Ryan McIntyre, managing partner at Sprott Inc., said the potential for a credit risk event because of sovereign debt concerns could help propel prices well above $2,000 an ounce.

Jesse Felder, founder of the Felder Report, said the U.S. fiscal problems are only getting worse and will be a significant factor for gold's push higher through 2024.

By

Neils Christensen

For Kitco News

Time to Buy Gold and Silver

David

Gold closes the week in-essence unchanged

Gold closes the week in-essence unchanged

Gold futures basis the most active June 2021 Comex contract opened on Monday morning in Australia at $1778.80 and today closed down – $5.50 (-0.31%) and is currently fixed at $1776.50. While gold had just under a $50 trading range during the week, by Friday’s close, gold futures lost only $2.20. The June contract traded to a high this week of $1798.80 and a low of $1764.40.

In the case of today’s fractional decline, it was an uptick in the yields of the U.S. 10-year Treasury note, as well as robust data regarding strong new home sales, which was credited as responsible for the decline.

Yesterday the U.S. Census Bureau reported that new home sales as viewed through a seasonally adjusted annual rate came in at 1,021,000 in March. This is the fastest growth of new home sales since 2006.

As reported by Markets Insider, “In the bond market, treasuries once again showed a lack of direction before ending the day in the red. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inch up by 1.3 basis points to 1.567 percent.”

According to Reuters, “Ten-year yields have stabilized and the inflation rebound to 2.6%, well above target, is likely to be short-lived. Still, swaps show that market expectations of future inflation are rising, and that means Treasury volatility may not be over yet.”

Even with strong tailwinds from dollar weakness today, gold prices were still unable to close positively on the day. The dollar index lost 52 points in trading on Friday, closing at 90.80, a net decline of -0.57%. The U.S. dollar has now closed lower on a weekly basis for the last three consecutive weeks. Four weeks ago, on the week of March 29, the dollar index closed at approximately 92.90. Since the last week of March to current pricing the dollar index has lost roughly 2.1%.

Concurrently gold prices over the last four trading weeks had risen from the second of a double bottom which occurred during the week of March 29 when gold traded to a low of $1677, to the high this week of $1798.80. In the last four trading weeks, gold has had a range of over $100, and even with this week’s fractional decline has had a significant gain throughout the month of April.

 

The week in review

When we look at the price changes that occurred this week in gold, it is obvious that a number of fundamental events had an opposing influence on pricing. At the beginning of the week, gains were the result of a renewed concern of recent upticks in Covid-19 infections, pointing to a contraction in the growth of the global economy. India experienced the highest surge in new infections, surpassing 300,000 daily reported cases on Thursday. During the latter part of the week, gold prices declined as a result of higher yields in 10-year notes and solid economic data in the United States.
 

By Gary Wagner

Contributing to kitco.com

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David