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'Negative' View of $33 Trillion in US Debt Fails to Buoy Gold Prices as Shutdown Looms

GOLD PRICES held at a 3-week low on Monday, while borrowing costs held onto last week's jump in the bond market after Moody's cut its outlook on the USA's $33 trillion in debt to 'negative' and politicians from both the Republican and Democrat parties rejected new House Speaker Mike Johnson's plan to prevent a US government shutdown from starting this weekend, writes Atsuko Whitehouse at BullionVault.
Gold prices in the US Dollar hovered at Friday's close of $1937 per Troy ounce, the lowest since mid-October, after losing 2.7% last week amid a raft of 'higher for longer' vows from the Federal Reserve and other major central banks over their interest-rate policies in the face of stubborn inflation. 
The price of US government bonds held onto last week's drop, keeping 30-year Treasury yields around 4.70% after the cost of borrowing leapt 15 basis points on Thursday following an auction of new debt which failed to find enough demand among lenders.
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Primary dealers, who agree to buy any supply not bought by investors, had to accept almost 1/4 of the $24 billion in new debt on offer from Washington, more than double the past year's average, as traders also said a ransomware attack on the US division of China's largest bank may have spooked the market.
Ratings agency Moody's on Friday revised its outlook on the United States' government debt to "negative" from "stable", citing the sharp rise in debt servicing costs – now topping $1 trillion per year – plus "continued political polarisation" ahead of the 2024 election, when disgraced ex-President Donald Trump looks likely to stand against even older incumbent Joe Biden.
Chart of US federal debt outstanding (to June) vs. monthly debt-interest payments. Source: St.Louis Fed
The government of the world's largest economy now has a total debt of $33.7 trillion, swelling by 7.3% so far this year – almost all of that growth coming since the debt-ceiling deal struck  at the end of May to avert a shutdown immediately after the mini-crisis in US regional banking shares.
Gold priced in Dollars has meantime risen by 7.1% in 2023 to date.
With the deal struck this May to avert the federal government running out of cash and needing to shutdown now set to expire on Friday, Johnson at the weekend proposed a 'stopgap' to fund some federal agencies into the New Year.
But politicians among both Johnson's Republicans and the White House's Democrat Party rebuffed his plan, the former demanding cuts to spending and the latter calling it "super convoluted".
"Moody's decision to change the US outlook is yet another consequence of Congressional Republican extremism and dysfunction," said a White House spokesperson at the weekend.
"Our $33.6 trillion debt is unsustainable," countered Johnson – the top Republican in Congress – proposing no stopgap funding for Ukraine or Israel amid their current wars and calling President Biden's spending agenda "reckless...a danger to our national security and economy.
Gold prices in both Euro and UK Pound terms today edged 0.1% lower to reach fresh 3-week lows at €1814 and £1582 per Troy ounce respectively as the Dollar index – a measure of the US currency's value versus its major peers – steadied ahead of this week's key consumer-price inflation data.
The price of silver fell harder, down 0.9% in Dollar terms to a 1-month low of $22.05 per ounce.
Oil prices meanwhile steadied around $81 per barrel of European benchmark Brent – some $2 above last week's 3.5-month low – as the latest monthly market report from the Opec cartel of producer nations claimed that "healthy oil market fundamentals" have been ignored by speculative traders.
Moody's is currently alone in rating US government debt "triple-A" after competitors Fitch downgraded Washington in August, finally following the 2011 US debt downgrade by S&P which coincided with then all-time highs in the gold price.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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