GOLD Analysis
Gold Surges Above $3,225 on US Credit Downgrade and Fed Rate Cut Bets
Highlights
- US credit rating cut by Moody’s from AAA to AA+ drives gold above $3,225 as safe-haven flows surge.
- Flash risk-on losses from the US-China tariff truce reversed by renewed Fed rate-cut bets amid softer US data.
- Gold faces technical support at $3,185 and resistance at $3,250, favoring sell-on-rallies around $3,235.
Overview:
Gold reclaimed ground above $3,225 per ounce as investors flocked back to safe-haven assets following Moody’s downgrade of the United States’ sovereign credit rating. For the first time in decades, the US lost its prestigious AAA rating, with Moody’s citing ballooning budget deficits and the growing cost of servicing debt amid higher interest rates. This unexpected move has rattled markets, underscoring concerns about fiscal sustainability and prompting a reassessment of risk across asset classes.
Last week, bullion endured its sharpest weekly decline since November, plunging over 3% as optimism around the 90-day tariff truce between the US and China bolstered risk-on sentiment. Both nations agreed to suspend most duties imposed since early April, easing fears of a deepening global recession. However, the credit rating setback shifted the narrative, rekindling gold’s appeal as a store of value.
Concurrently, a softer macroeconomic backdrop in the United States—evidenced by cooling inflation prints and below-forecast economic indicators—has revived expectations for additional Federal Reserve rate cuts later this year. Lower policy rates reduce real yields and the opportunity cost of holding non-yielding gold, further underpinning the metal’s bullish case.
Looking ahead, market attention will turn to critical inflation measures from the Euro Zone—Final Core CPI y/y and Final CPI y/y—which will influence European monetary policy trajectories. In the United States, the Conference Board Leading Index for May will provide insight into the near-term health of the economy and inform Fed deliberations. Together, these data points will shape the balance of growth, inflation, and monetary policy expectations that drive gold prices.
Technically, gold’s next support lies at $3,185, reflecting recent intraday lows, while immediate resistance is pegged at $3,250, just above current trading levels. Traders may consider a sell-on-rallies strategy—initiating short positions around $3,245, targeting $3,200, and placing a stop-loss above $3,265—to capitalize on elevated volatility and potential retracements.