- Gold rose after Moody’s downgraded the US government’s credit rating.
- Gold had a hard time last week as risk appetite soared after a trade truce between China and the US.
- Market participants are pricing a 67% chance of a September Fed rate cut.
Gold prices extended this week’s gains on Wednesday after Trump failed to convince some Republicans to vote for his tax bill. At the same time, concerns about the recent downgrade of the US government’s credit rating kept safe-haven demand for the yellow metal high.
Gold (Source: Bloomberg)
Gold has had a bullish week so far, which started when Moody’s downgraded the US government’s credit rating, citing a growing debt burden. As a result, investors lost confidence in US assets, especially bonds. Instead, they turned to safer assets like gold.
Moreover, Trump has been working to pass a bill that will introduce significant tax cuts. Such a move would further increase the size of the US debt. However, reports revealed that Trump had failed to convince some Republicans to back his Bill. Consequently, there is uncertainty about its future, and gold is considered the best bet in times of uncertainty.
Gold had a hard time last week as risk appetite soared after a trade truce between China and the US. The two countries announced a 90-day pause on Monday. Moreover, they both slashed tariffs to sustainable levels, pausing a trade war that had caused untold economic uncertainty.
The truce eased global recession concerns and opened the door to more such deals. As a result, investors dumped safe-haven assets like gold and bought equities.
Furthermore, geopolitical tensions have been easing with Russia and Ukraine heading for a peace deal. However, a recent phone call between Trump and Putin revealed that Russia’s president was still not ready to commit to a ceasefire. Therefore, until there is a deal between the two countries, uncertainty about the war will keep demand for gold high.
Meanwhile, there was some relief for bullion from soft US economic data. Consumer and wholesale inflation figures came in below estimates. At the same time, sales dropped sharply from the previous month. Meanwhile, consumer sentiment continued declining. All these added pressure on the Fed to lower borrowing costs. Market participants are pricing a higher 67% chance that the Fed will cut in September.
However, inflation expectations soared to new highs. At the same time, policymakers remain cautious, saying they need more time to assess the impacts of Trump’s tariffs. More downbeat data will increase the likelihood of a rate cut, boosting gold.
