Gold prices edged higher on Monday, finding support from escalating concerns over the US economic outlook and its burgeoning budget deficit, which bolstered the appeal of traditional haven assets.
However, the precious metal pared some of its earlier, more substantial gains as the trading session progressed.
The initial impetus for gold’s upward movement came as bullion traded above $3,218 an ounce, having surged by as much as 1.4% during Asian morning trading.
This rally was a direct reaction to Moody’s Ratings’ announcement late Friday that it was downgrading the US government’s top-tier credit rating from Aaa to Aa1.
The rating agency cited the “inability [of successive administrations] to cut the budget deficit” as a primary driver for its decision.
In its statement, Moody’s elaborated on its assessment: “While we recognize the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics.”
This rare downgrade from a major rating agency sent ripples through financial markets, prompting a flight to safety that typically benefits assets like gold.
Gold’s recent price swings
The precious metal has been on a rollercoaster ride in recent months.
Just last week, it experienced its largest weekly loss since November, a consequence of easing geopolitical tensions.
This decline followed a blistering rally that saw gold prices soar above $3,500 an ounce for the first time ever only last month.
Despite these fluctuations, gold remains significantly up for the year, boasting a gain of more than one-fifth.
This sustained strength has been underpinned by a confluence of factors, including ongoing global conflicts, the economic ramifications of US President Donald Trump’s extensive tariff implementations, and consistent inflows into gold-backed exchange-traded funds (ETFs).
Short-term volatility, long-term tailwinds
Market analysts anticipate continued choppiness for gold in the near term, though the longer-term outlook appears more robust.
“We expect gold to be volatile in the short term as we see a mix of good and bad news headlines,” Vasu Menon, managing director of investment strategy at Oversea-Chinese Banking Corp, told Bloomberg.
However, Menon also identified significant underlying support for the metal, stating that in the long run, President Trump’s policies and a broader trend of diversification away from dollar-denominated assets represent “structural tailwinds for gold that could see it scaling new heights in the coming years.”
As of 1:04 p.m. in Singapore, gold was trading up 0.5% at $3,218.30 an ounce.
In currency markets, the Bloomberg Dollar Spot Index dipped 0.2%, reflecting some pressure on the US dollar.
Other precious metals also saw modest gains, with silver, palladium, and platinum all edging higher.
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