Late last Friday, Moody's Investment Service joined all the other credit rating agencies in downgrading U.S. debt from Aaa to Aa1, limiting some super-safe money funds from investing in America.
The move also signals the formerly risk-free U.S. debt market is no longer risk-free, and that gold is now the lone safe-haven of choice.
Following a healthy 11% correction from an extreme overbought all-time high at $3500, Gold Futures reacted in kind this week, moving above initial resistance at $3300.
Geopolitical concerns, a growing sovereign debt crisis, and evidence of stagflation setting in during an ongoing trade war have been the principal drivers for gold becoming the safe-haven of choice.
Looking ahead, Moody’s said it sees little hope that government spending will materially change. At the current trajectory, the nearly $37 trillion deficit is expected to advance from 5.4% of GDP in 2024 to around 9% by 2035.
The agency believes the U.S. still offers “exceptional credit strengths,” but debt and payment ratios are now “considerably higher than those of similarly rated sovereign entities.”
As interest rates remain over 4%, the government pays an astronomical fee to simply service its debt, with projections from the Congressional Budget Office (CBO) for 2025 slated to be $952 billion as the Trump administration seeks to extend tax cuts.
The CBO's long-term debt outlook in March assumed a 2025 10-year Treasury yield of 4.1%. But the yield has averaged 4.4% for the year to date and is going in the wrong direction.
Interest payments on the debt are through the roof, while 70% of the exponentially rising federal debt is accumulative interest. But in a crisis, the Fed can only print more money to pay off old maturing debt with new debt. Perpetually issuing new debt to pay for the old is equivalent to a Ponzi scheme that will eventually fail.
After Bridgewater Associates founder Ray Dalio bought 1.1 million shares ($319M) of SPDR Gold Shares (GLD) in Q1, the billionaire investor warned Monday that Moody’s downgrade of the U.S. sovereign credit rating understates the threat to U.S. Treasurys. Dalio said the credit agency isn’t taking into account the risk of the federal government simply printing money to pay its debt.
Moody's also cited political instability as a concern, as Republicans and Democrats have been unable to align on methods to meaningfully reduce the deficit.
Following a 20-year U.S. Treasury auction receiving limited interest Wednesday, pushing bond yields up and stocks significantly lower, the U.S. House of Representatives passed President Donald Trump's tax bill by a single vote on Thursday.
What Trump has dubbed a "big, beautiful bill" now heads to the Republican-controlled Senate, where it will likely be changed further during weeks of debate.
If passed in its current form, the law would add roughly $3.8 trillion to the federal government's $36.8 trillion in debt over the next decade, according to the nonpartisan CBO.
Treasuries rose Thursday following the bill passing in the House, with the 30-year rising above 5% and the 10-year moved above 4.5%, which has, for a long time now, been pressurized levels where stocks become troubled.
Investors see a larger risk in government debt and are demanding increased compensation for holding it. Concerns over funding the U.S. deficit means that yields are likely to continue rising, signaling a loss of faith in the creditworthiness of the United States, while gold has no counterparty risk.
After a volatile start to the year, Treasury markets remain on edge, with the perceived risk of holding long-term debt reflected in the so-called "term premium" hovering at 10-year highs around 70 basis points.
A correlated selloff with stocks following the tariff shock early last month sparked more safe-haven related gold buying, which returned this week after a 4-week correction in the gold price.
As long as the inflation rate remains elevated, along with the threat of inflation from tariffs, the Fed will hold the line, much to the chagrin of President Trump.
Federal Reserve officials said on Tuesday they expected tariffs to push up prices, but counseled patience before any interest-rate decisions were made.
Despite President Trump continuing to publicly chastise Fed Chair Jerome Powell for holding rates steady, the odds of the world's most powerful central bank cutting much in 2025 are low.
With employment steady and inflation remaining well above the Fed's mandated 2% target, the market now expects only two interest rate cuts in 2025.
With the potential for a huge tax cut coming closer to a reality yesterday, nervousness from foreign bond buyers following the credit rating downgrade is a recipe for higher rates, not lower ones.
Once again, the USDX has also moved back down below the key psychological support level at 100 as well. With fears of the Fed having to step into buy the debt, being the “lender of last resort,” the U.S. dollar is not being perceived as a safe-haven either.
All this has begun to weigh on historically overvalued stocks as the current rebound rally in general equities is running out of steam, while the gold complex continues to massively outperform the stock market since Trump became a second-term President of the United States.
As the gold price consolidates recent out-sized gains, the lagging silver price continues to incentivize consolidation among mining players in the silver space.
The miners of silver, of which there are a select few, have recently begun to concentrate on growth, cutting costs, and delivering better returns to increasingly demanding investors ahead of an anticipated silver breakout above multi-year resistance at $35/oz.
Following a fourth single asset miner being gobbled up since September by a global silver producer last week, Adriatic Metals (ADT1.L) confirmed Tuesday it is in takeover talks with mid-tier miner Dundee Precious Metals (DPM.TO).
Dundee’s mining portfolio, including Bulgarian mines and the highly optimistic Čoka Rakita project in Serbia, makes sense to include Adriatic Metals’ wholly owned Vareš silver project, which covers approximately 50 sq. km in Bosnia and Herzegovina.
Meanwhile, the higher-risk silver ETFs SIL and SILJ have been leading gold stocks higher since the mining sector began to consolidate recent outsized gains last month.
After rising a blistering 55% thus far in 2025, both GDX and GDXJ miner ETFs have been consolidating recent gains along with the gold price since the first week of April, while the junior sector has been catching up with the miners as well.
The weekly Canadian TSX-Venture chart (CDNX), where 50% of its holdings are small-cap junior resource stocks, is breaking out of an uber-bullish 3-year accumulative inverse head & shoulders basing pattern as huge miner gains are being rotated into quality under-owned juniors.
At Junior Miner Junky (JMJ), my subscribers and I have accumulated shares in a basket of quality gold, silver, and copper related juniors, ahead of the recent major breakout in the mining sector.
Several have risen 2x-5x over the past 12-months, with others having recently begun to catch up to the outperformers as sector rotation from high-flying miners and royalty/streamers has been taking place since an early-April high in GDX.
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