Gold turns positive as Moody's US downgrade sends US yields higher

LONDON (May 19) Gold (XAU/USD) price remains within a tight range, trading slightly higher near $3,243 at the time of writing, with three main themes at play on Monday. Tensions are brewing in the Middle East with Israel embarking on another massive ground offensive. The military action comes just days after United States (US) President Donald Trump visited the Middle East, though he didn’t visit Israel. 

The second main driver is the bond market, where several pension funds and Fixed Income (Bonds) investors will need to reshuffle their holdings after rating agency Moody’s downgraded the US's sovereign debt credit rating after the market closed on Friday. In lowering the US rating from 'AAA' to 'Aa1', Moody's noted that successive US administrations had failed to reverse ballooning deficits and interest costs, BBC reports. This could have repercussions for the Federal Reserve(Fed) and US yields, where non-US parties will ask for higher rates in search of more guarantees before considering buying US debt. 

The very last driver this Monday is rather a headwind for the precious metal. US President Trump last week torpedoed peace talks in Istanbul by saying at Air Force One that no deal was possible without himself and Russian President Vladimir Putin involved. Both presidents will have a phone call on Monday to discuss the matter, and could provide headwinds for Gold if a breakthrough is materializing. 

Daily digest market movers: Geopolitical, trade talks, USD to drive Gold’s price 

• A reclusive Chinese billionaire whose prescient Gold trades turned into an eye-catching windfall has now become the country’s biggest Copper bull, amassing a bet worth nearly $1 billion in a market jolted by escalating competition between the US and China, Bloomberg reports. 
• Gold is sliding lower as traders respond to fresh uncertainty surrounding the US outlook after Moody’s lowered the nation’s sovereign credit rating. The increase in general angst levels may also be reviving concerns about the potential for lower US and global economic growth, given the drop in crude oil contracts, Bloomberg reports. 
• “While we recognize the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” Moody’s added in its statement, Reuters reports. 
• The US 30-year yield rose to 5% on Monday after Moody’s rate cut, back to April’s levels. 

FXStreet