Will Moody’s downgrade and rising yields rekindle the Gold Bulls?
Moody’s downgraded one of the US’s sovereign credit ratings on Friday, pointing to unsustainable levels of debt. This move is expected to trigger a sell-off in US stocks and dollars. There’s a growing concern that Treasury yields could soar, which might shift focus towards long-term borrowing costs. Notably, the 10-year yield climbed to 4.51%, while the 30-year yield surpassed 5%—a first in about a month.
Even with the increase in yields, the Dollar Index (.DXY) dropped by 0.5% on Monday, especially as gold rebounded over 2%, marking its most significant weekly downturn since November. Analysts suggest that the downgrade and the resulting risk-averse sentiment are pushing up gold prices, despite a slight cooling in the expectations for interest rate cuts.
Trump’s tariffs and trade uncertainty fuel gold price forecasts
US Treasury Secretary Scott Bescent announced on Sunday that President Trump plans to impose tariffs on nations that are deemed to negotiate in bad faith. The ongoing uncertainties regarding customs policies are making market participants anxious due to potential trade disruptions. Bescent is set to attend the G7 for more discussions, but analysts are concerned that the ambiguity around tariffs could negatively impact global sentiment.
The recent data on retail sales and inflation painted a bleaker picture of the economy than anticipated, which has solidified expectations that the Fed may consider cuts by September. Currently, the market is easing at 52 basis points annually, a sharp decline from over 100 bps just a month ago.
