Gold ignores Fitch US credit rating downgrade
August 2, 2023 10:22 amVideo
Latest News
- Trading Signals for EUR/USD for April 25-27, 2024: buy above 1.0684 (21 SMA – 3/8 Murray) April 25, 2024
- Trading Signals for GOLD (XAU/USD) for April 25-27, 2024: buy above $2,324 (21 SMA – 5/8 Murray) April 25, 2024
- Analysis of GBP/USD on April 25th. The dollar suffered a local defeat to win the war April 25, 2024
- USD/JPY: Simple trading tips for novice traders on April 25th (US session) April 25, 2024
- GBP/USD: Simple trading tips for novice traders on April 25th (US session) April 25, 2024
- EUR/USD: Simple trading tips for novice traders on April 25th (US session) April 25, 2024
- GBP/USD: trading plan for the US session on April 25th (analysis of morning deals). The pound continued its recovery April 25, 2024
- EUR/USD: trading plan for the US session on April 25th (analysis of morning deals). The dollar is ready for GDP data April 25, 2024
- Euro turns to GDP and inflation data for a lifeline – Preview April 25, 2024
- Technical Analysis – BTCUSD retreats after unsuccessful test of 50-SMA April 25, 2024
- Technical Analysis – NZDUSD advances after bounce off 5-month low April 25, 2024
- Midweek Technical Look – GBPUSD, EURJPY, Gold April 25, 2024
- Amazon earnings set for AI-driven cloud and ads boost – Stock Markets April 25, 2024
- EUR/USD. April 25th. Bulls continue to advance and expect a weak US GDP report April 25, 2024
- GBP/USD. April 25th. Bulls take advantage of weak US statistics April 25, 2024
- Overview of the GBP/USD pair on April 25, 2024 April 25, 2024
- Overview of the EUR/USD pair on April 25th. The dollar may start to get cheaper at the end of the year, after the arrival April 25, 2024
- Technical Analysis – EURUSD creates bullish channel in near term April 25, 2024
- Forex forecast 04/25/2024: EUR/USD, USDX, Gold and Bitcoin from Sebastian Seliga April 25, 2024
- Market Comment – Yen tumbles to fresh lows, dollar awaits GDP April 25, 2024
Fitch downgraded the U.S. credit rating to AA+ from AAA due to governance erosion over the past two decades. This is evident in the repeated confrontations between Democrats and Republicans over debt limits and last-minute resolutions. The organization expects a recession in the American economy around 2023–2024 and predicts an increase in the budget deficit from 3.7% in the past to 6.3% this year. If back in 2011, precious metal soared when S&P downgraded the rating, this time it barely flinched. What has changed?
In those days, instead of getting rid of Treasury bonds, investors actively bought them up. As a result, yields plummeted, dragging the U.S. dollar down to the bottom. In August 2023, the markets were not shaken because Fitch had already warned of the possible downgrade back in March. Moreover, the drama with the debt ceiling remained in the past, and it is unlikley that the debt market rates will fall. On the contrary, the massive $1 trillion issuance of Treasury bonds in the third quarter and the weakened yield curve control by the Bank of Japan increase the risks of rising rates and strengthening the American dollar. In such an unfavorable environment, “bulls” on XAU/USD are unlikely to please their supporters.
The surprise from Kazuo Ueda and his colleagues struck the global debt market. In just three days, the volume of bonds with negative yields decreased by $600 billion. At the end of 2020, it reached a record $18.4 trillion. And that’s when gold shone.
Dynamics of bonds with negative yields
The World Gold Council report on the physical asset market does not add optimism to the precious metal. Net purchases by central banks fell 64% to 103 tonnes, the lowest level in more than a year. Turkey should be blamed, which sold 132 tonnes to obtain resources to support the lira. The outflow of capital from the ETF amounted to 21 tonnes, with the worst situation in June.
According to WGC data, gold demand in India will fall to 650–750 tonnes in 2023, the lowest level since 2020. For comparison, Indians purchased 774 tonnes last year. The country is the largest consumer of the precious metal along with China.
Dynamics of gold demand in India
The markets underestimate the factor of the Federal Reserve’s readiness to maintain the federal funds rate at a plateau for an extended period. As long as macro statistics in the United States do not significantly deteriorate, the central bank will be cautious. It does not want to make the same mistake as its predecessors—declaring victory over inflation prematurely. This circumstance plays into the hands of the U.S. dollar and carries a negative impact for XAU/USD.
Technically, on the gold daily chart, there is exhaustion of the correlation movement towards the downward trend, as confirmed by the formation of the 1-2-3 pattern. As long as the quotes remain below the fair value of $1960 per ounce, it is advisable to sell the precious metal towards $1931 and $1915.
The material has been provided by InstaForex Company – www.instaforex.com
Related Posts: