Gold benefits from uncertain US budget situation – Commerzbank

FXStreet Insights Team FXStreet

The price of Gold has climbed back above the $3,300 per troy ounce mark in recent days, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen reports.

Risk of stronger upward swings in Gold rises

"This was primarily fuelled by concerns about the US budget situation which is reflected in the significant rise in US bond yields, particularly at the long end (20, 30 years), which is likely due to an increase in the risk premium. A weaker US dollar also provided support."

"Concerns are being fuelled by the US government's massive fiscal package currently being discussed in the US Congress. If implemented as planned, this threatens to significantly inflate the US government deficit in the coming years and therefore calls into question the sustainability of US debt."

"Added to this was the recent downgrading of the US credit rating by a major rating agency. All of this erodes the status of US government bonds as a safe haven, meaning that Gold is in greater demand in uncertain times. This effect is likely to be self-reinforcing the more often it is observed. The risk of stronger upward swings in Gold has therefore increased."

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FXStreet Insights Team

FXStreet

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