Gold advances to near $3,250 due to safe-haven demand, US economic concerns

• Gold price are supported by increased safe-haven demand following Moody's downgrade of the US credit rating.
• Moody's projects US federal debt to surge to approximately 134% of GDP by 2035, up from 98% in 2023.
• A series of weak US economic indicators has strengthened expectations of further Federal Reserve rate cuts later this year.

Gold (XAU/USD) is recovering from recent losses, trading near $3,230 per troy ounce during Monday's Asian session. The rebound is fueled by increased demand for safe-haven assets amid rising concerns over the US economic outlook and fiscal health.

Moody's recently downgraded the US credit rating by one notch, from Aaa to Aa1, citing escalating debt levels and a growing burden from interest payments. This move follows previous downgrades by Fitch Ratings in 2023 and Standard & Poor's in 2011. Moody's now forecasts US federal debt to soar to approximately 134% of GDP by 2035, up from 98% in 2023, with the federal deficit expected to widen to nearly 9% of GDP. This is attributed to higher debt servicing costs, increased entitlement spending, and falling tax revenues.

Last week, Gold posted its sharpest weekly decline since November, falling over 3%, as easing global trade tensions boosted risk appetite. A preliminary US-China trade agreement includes tariff reductions--Washington will lower duties on Chinese goods from 145% to 30%, while Beijing plans to cut tariffs on US imports from 125% to 10%. Market sentiment was also buoyed by renewed optimism over a potential US-Iran nuclear deal and upcoming talks between US President Donald Trump and Russian President Vladimir Putin aimed at easing tensions in Ukraine.

Meanwhile, a string of disappointing US economic indicators has reinforced expectations of further rate cuts by the Federal Reserve later this year. The University of Michigan's (UoM) Consumer Sentiment Index unexpectedly dropped to 50.8 in May from 52.2 in April, marking the lowest reading since June 2022 and the fifth consecutive monthly decline. Economists had anticipated an increase to 53.4.