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(Kitco News) – 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.
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