The price of gold fell last week despite a rating agency downgrading US government debt.
Gold – Weekly Chart
XAUUSD Faces Resistance
Bullion prices have hit a resistance level at $1,959 and pulled back to $1,942. Support at the moving average is $1,900, with the larger target at $1,808.
Gold can be a frustrating asset because it is said to be an inflation hedge, but the surge in inflation and the start of central bank rate hikes led to a decline in 2022. Hopes that the central banks would reverse that strategy saw gold rally in 2023. Even a Fitch downgrade last week failed to lift prices.
Fitch, which is one of three major independent agencies assessing creditworthiness, cut the rating of US government debt from AAA to AA+.
Fitch cited a “steady deterioration” in governance over the last 20 years, but US Treasury Secretary Janet Yellen called the downgrade “arbitrary”. Yellen said the assessment was based on “outdated data” from 2018 to 2020.
This year saw another round of political brinkmanship over government borrowing, which will rear its head again after the 2024 election. Investors are also wise to see a President under investigation, with an opponent being suppressed by indictments.
June government borrowing lifted the debt ceiling to $31.4 trillion but only after a political battle, which threatened to push the country into default on its debts. When Congress returns from the current summer recess, lawmakers will have to work to reach an agreement on next year’s budget before the end of September to prevent a government shutdown.
“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance” relative to peers, said Fitch.
“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the rating agency said.
