Has Fitch's US credit downgrade brightened gold's long-term outlook?
Explained: What is a rating downgrade? And six key reasons why Fitch Ratings downgraded US The move has the potential to affect the overall economy and hit investor confidence, leading to negative market sentiment. Moreover, the downgrade can also impact the US dollar in a negative way which is positive for gold since the yellow metal is priced in dollars. Investors prefer gold for investment in times of economic uncertainty.
Read more: Fitch Ratings downgrade: Could a cut in US rating mean higher inflows to India, other EMs? Gold is witnessing some volatility in the near term, reacting to macroeconomic prints and the movement of dollar and bond yields. However, experts believe the yellow metal is poised for gains in the long term after the US credit downgrade. "The long-term view on gold remains bullish, especially after the Fitch Ratings downgrade of US government debt as the rating agency cited growing debt burden, fiscal deterioration and erosion of governance being major triggers for such a move," Ravindra V.
Rao, CMT, EPAT, VP-Head Commodity Research at Kotak Securities pointed out. "Caught in the current bullish optimism on the US dodging a recession, markets largely shrugged off the news. However, this is definitely not going to be good for the world's largest economy in the long term.
Elevated inflation and higher rates in the US increase the interest expenses and the burden to pay back the debts. Paying off debts by printing dollars is not a solution in this high-inflation environment. A worsening fiscal situation coupled with de-dollarisation efforts might fare well for gold prices in the long term," Rao observed.
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