Gold rebounded sharply during Monday’s Asian trading session, edging close to $3,230 per troy ounce as investors turned to safe-haven assets amid escalating concerns about the US economy and fiscal outlook.
The recovery follows gold’s steepest weekly decline since November, when it fell more than 3% on improved risk sentiment. That drop was fueled by easing global trade tensions and renewed geopolitical optimism. However, the tide has now shifted.
Credit Downgrade Weighs on Confidence
Moody’s Investors Service recently downgraded the US credit rating from Aaa to Aa1, citing surging debt levels and mounting interest obligations. The move aligns with earlier downgrades by Fitch Ratings in 2023 and Standard & Poor’s in 2011.
Moody’s now projects US federal debt will climb to roughly 134% of GDP by 2035, up from 98% in 2023. It also forecasts the federal deficit widening to nearly 9% of GDP, driven by rising debt servicing costs, increased entitlement spending, and declining tax revenues.
The downgrade has shaken investor confidence, pushing demand for safe-haven assets like gold higher.
Trade Optimism and Geopolitical Developments
Gold’s previous decline was largely attributed to growing optimism on the geopolitical front. A preliminary trade deal between the US and China signaled a thaw in bilateral tensions, with Washington agreeing to reduce tariffs on Chinese imports from 145% to 30%. In response, Beijing plans to cut duties on US goods from 125% to 10%.
Investors were also encouraged by reports of a possible US-Iran nuclear agreement and scheduled talks between US President Donald Trump and Russian President Vladimir Putin aimed at de-escalating the conflict in Ukraine.
Weak US Data Fuels Rate Cut Expectations
The latest US economic data has added to investor unease. The University of Michigan’s Consumer Sentiment Index fell unexpectedly to 50.8 in May, down from 52.2 in April and marking its lowest level since June 2022. The reading also represents the fifth consecutive monthly decline, defying economists’ expectations of a rise to 53.4.
The weaker sentiment, coupled with growing fiscal concerns, has strengthened market expectations that the Federal Reserve may implement further interest rate cuts later this year.
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