(Kitco News) - Gold prices caught a new safe-haven bid in the final minutes of the trading week after rating agency Moody’s downgraded the U.S. credit rating by one notch.
After the close on Friday, the agency lowered U.S. debt to Aa1 from Aaa, citing rising interest costs and unsustainable debt growth. At the same time, it revised its outlook on the U.S. to "stable" from "negative."
“This one-notch downgrade on our 21-notch rating scale reflects the increase, over more than a decade, in government debt and interest payment ratios to levels that are significantly higher than those of similarly rated sovereigns,” the agency said in a statement.
The downgrade comes as the U.S. government has implemented strict austerity measures through the Department of Government Efficiency, overseen by Tesla CEO Elon Musk. While Musk initially promised $2 trillion in cuts, the savings have been significantly lower. According to reports, less than $100 billion in verified savings has been achieved.
Looking ahead, Moody’s said it sees little hope that government spending will materially change.
“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”
Markets had little time to react to Moody’s downgrade before the weekend; however, gold saw a solid reversal, with prices ending the week back above $3,200 an ounce.
While gold rallied, U.S. Treasury yields ticked higher and stock index futures wavered in after-hours trading, reflecting investor uncertainty heading into the weekend.
Moody's was the last of the major ratings agencies to keep an Aaa rating for U.S. sovereign debt; however, it had lowered its outlook in late 2023 because of the government’s growing fiscal deficit and higher interest payments.
