Gold prices advanced on Tuesday, nearing $3,240 per ounce, as investors reacted to further credit downgrades from ratings agency Moody’s—this time targeting major U.S. banks—just days after it lowered its outlook on U.S. sovereign debt.
The gains in gold come despite the yellow metal still trading more than $250 below its record high of $3,500 set last month. The renewed safe-haven interest follows Moody’s downgrade of the U.S. Treasury’s credit rating from AAA to Aa1, aligning it with previous cuts by S&P in 2011 and Fitch in 2023.
Adding to investor unease, Moody’s on Monday cut the credit ratings of several major U.S. banks—including JPMorgan Chase, Bank of America, and Wells Fargo—by one notch to Aa2, citing broader concerns about fiscal sustainability and financial system vulnerabilities.
Fed Officials React Cautiously to Downgrade
Federal Reserve officials acknowledged the downgrade’s potential ripple effects.
“We will put that downgrade in the same perspective that we do with all incoming information,” said Fed Vice Chair Philip Jefferson.
Atlanta Fed President Raphael Bostic added, “The downgrade will have implications for the cost of capital and a bunch of other things, and so it could have a ripple through the economy.”
Meanwhile, New York Fed President John Williams noted ongoing concerns from investors: “Over the last few months, there are some rumors or concerns about whether investors want to be so heavily invested in Treasuries.”
Gold Outperforms as Treasuries Falter
Investors holding long-dated U.S. Treasury bonds have seen losses of nearly 50% over the past five years due to persistent inflation and rising interest rates. In contrast, gold has climbed more than 85% over the same period, reinforcing its appeal as a long-term hedge against economic instability and dollar weakness.
“Overall, over the next few months, I think gold is a good safe bet considering the downgrade on the United States,” said one futures broker quoted by Reuters. “It’s still, to me, a buy-and-hold market.”
Broader Market Reaction
Financial stocks showed mixed performance ahead of Moody’s post-market announcement. Shares of JPMorgan dipped 1.0% from a three-month high, while Bank of America rose slightly by 0.2%. Wells Fargo slipped 0.2%.
Silver also caught a bid alongside gold, jumping nearly $1 from last Thursday’s five-week low of $31.65. The rally in silver reflects continued investor demand amid geopolitical risks and industrial supply concerns.
In foreign currency terms, gold priced in euros surged over €30 per ounce to €2,880 after slipping last week on easing geopolitical tensions and trade war rhetoric. Meanwhile, the UK gold price in British pounds rose back to £2,425 per ounce, marking a 3.1% recovery from last week’s low.
Outlook
With the Fed facing a challenging balancing act, concerns over U.S. debt sustainability, and heightened geopolitical risks, gold appears well-positioned as a defensive asset. The continued erosion of confidence in U.S. creditworthiness may further strengthen the case for long-term allocations to gold and silver.
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