It has been a positive start for the gold price this week. The yellow metal opened in positive territory the previous Sunday. A slight rally appeared to be the reaction to Moody’s negative outlook on the US debt.
Despite the fact that America was affirmed with the AAA rating by the agency last Friday, it changed the outlook status of the US credit. It switched from “stable” to “negative”. It pushed the gold price by 0.42%. The yellow metal ended up at $1.945.90 per ounce the previous Sunday.
Experts from Moody’s explain the negative outlook. They believe it was triggered by instability in domestic politics. Congress failed to pass legislation to fund the government. In the fear of another shutdown, markets renewed their focus on the growing US debt featuring the elevated interest rate.
Analysts say the US fiscal debt will remain enormously high. In simpler words, debt affordability will become weaker. The only way to prevent it is to take effective fiscal policy steps that would increase revenues or, at least, reduce government spending.
Meanwhile, political polarization inside the congress continues. The risk of another potential government shutdown is very high. It means that politicians may not reach a consensus regarding the fiscal plan that would slow down the debt affordability decline.
There is another reason for such a downgrade. We should consider a disappointing auction with the US Treasury selling $24 billion in 30-year bonds. It forced dealers to accept twice as much debt on offer (24.7% against 12% during the past year).
Other agencies, like Fitch, changed the US long-term rating from AAA to AA+. Experts say the United States narrowly avoided debt defaulting. The situation made commodity analysts become bullish on gold believing the asset price will exceed $2,000 in the near future while fiscal problems are getting even worse.
May the trading luck be with you!
