Gold (XAU/USD) is staging a recovery from recent setbacks, trading near $3,230 per troy ounce during Monday’s Asian session. This rebound is driven by heightened demand for safe-haven assets amid growing concerns over the US economic outlook and fiscal stability.
Moody’s Investors Service recently downgraded the US credit rating from Aaa to Aa1, citing mounting debt levels and rising interest payment obligations. This downgrade follows Fitch Ratings’ 2023 downgrade and Standard & Poor’s 2011 decision. Moody’s projects US federal debt will surge to roughly 134% of GDP by 2035, up from 98% in 2023, while the federal deficit is expected to widen to nearly 9% of GDP. Key factors behind these projections include escalating debt servicing costs, increased entitlement spending, and declining tax revenues.
Last week, gold experienced its steepest weekly drop since November, plunging over 3%, as easing global trade tensions lifted risk appetite. A preliminary US-China trade deal outlined significant tariff cuts: Washington will reduce tariffs on Chinese goods from 145% to 30%, while Beijing plans to lower tariffs on US imports from 125% to 10%. Market optimism was further supported by hopes for a US-Iran nuclear agreement and upcoming discussions between President Donald Trump and Russian President Vladimir Putin aimed at easing Ukraine tensions.
Meanwhile, disappointing US economic data have reinforced expectations for additional Federal Reserve rate cuts later this year. The University of Michigan’s Consumer Sentiment Index unexpectedly fell to 50.8 in May from 52.2 in April, marking its lowest level since June 2022 and the fifth consecutive monthly decline—contrary to economists’ forecast of a rise to 53.4.
