Gold futures are struggling for direction as the US Treasury market trended higher to kick off the trading week following a downgrade by one of the Big Three rating firms. The yellow metal suffered its first weekly loss in more than a month as stocks edged higher and the US dollar strengthened.
December gold futures dropped $1.80, or 0.09%, to $1,935.90 per ounce at 14:11 GMT on Monday on the COMEX division of the New York Mercantile Exchange. Gold prices fell more than 2% last week, the first weekly decline in five weeks. The yellow metal is still up about 6% year-to-date.
Silver, the sister commodity to gold, struggled to stay above $22. January silver futures tumbled $0.221, or 0.99%, to $22.06 an ounce. The white metal also slumped about 5% last week, adding to its year-to-date loss of nearly 9%.
Financial markets are digesting the latest downgrade from Moody’s Investors Service that took investors by surprise.
After the markets closed on Friday, Moody’s lowered its outlook on the US credit rating from “stable” to “negative,” citing ballooning fiscal deficits and a drop in debt affordability. The announcement came months after Fitch downgraded US credit.
“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the agency said in a report. “Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”
The White House disagreed with the assessment because “the American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset.”
But investors say that the markets were right, with the latest surge in US Treasury yields.
At the start of the trading week, the benchmark ten-year yield surged 4.6 basis points to 4.674%. The two-year yield jumped 1.1 basis points to 5.073%, while the 30-year bond advanced 5.4 basis points to 4.787%.
Traders are also responding to Federal Reserve Chair Jerome Powell’s recent remarks that the central bank may have to raise interest rates again if the data is warranted.
Gold is typically sensitive to movement in interest rates because it impacts the opportunity cost of holding non-yielding bullion.
Meanwhile, the greenback weakened on Monday, with the US Dollar Index (DXY), a gauge of the buck against a basket of currencies, sliding 0.05% to 105.81, from an opening of 105.86. The index rose 0.6% last week and is up 2.2% year-to-date.
A weaker buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to purchase.
In other metal markets, December copper futures rose $0.0605, or 1.69%, to $3.6475 per pound. December platinum futures added $11.10, or 1.31%, to $856.00 an ounce. December palladium futures were flat at $979.00 per ounce.