Dollar, gold can strengthen as investors shift assets towards safe havens

New Delhi, August 2

The dollar and gold can strengthen as investors shift assets towards safe havens due to the impact of US debt being downgraded by Fitch, Tata Mutual Fund said.

This could also weigh on emerging-market assets due to rise in US yields.

“We believe that the Fitch rating downgrade is unlikely to lead to major impact in debt, currency and commodity markets. As the previous rating downgrade for US debt came in 2011 by S&P, which had then led to steep stock market declines and rising bond yields. Currently we have seen some correction in equity markets globally due to risk off sentiment and minimal impact on bond yields, currency and commodity markets,” the report said.

This recent rating downgrade can lead to rise in US Treasury yields and decline in risk assets.

Fitch Rating downgraded its US debt rating to AA+ from AAA. The Rating downgrade reflects the expected fiscal deterioration over the next three years, a high and growing government debt burden, and erosion of governance.

Treasury Secretary Janet Yellen quickly responded to the downgrade, calling it “arbitrary” and “outdated.”

Gold prices gained slightly after the US government’s credit rating was downgraded by Fitch, says Hareesh V, Head of Commodities at Geojit Financial Services.

“Usually, economic uncertainties and dollar volatility can have significant impacts on the price and demand for gold as it is considered a safe-haven asset. The rating downgrade of the world’s largest economy tends investors to park their money in relatively safer assets like bullion,” he said.

Jateen Trivedi, VP Research Analyst at LKP Securities said gold prices have shown positive rally on safe-haven demand as Fitch downgrades the US Credit Rating, reflecting heightened concerns over the stability of global financial markets and investors seeking refuge in the timeless allure of gold.

With many crises passed from the China-US trade war, pandemic, Russia-Ukraine war and now US debt crisis, gold will be on investors top list to keep funds allocated in times of uncertainty.

Gold broadly looks likely to take support of 58000, as even if Spot gold underperforms due to dollar rise the rupee fall adds domestic Gold price to remain positive towards 60000-62000 in near term, he said.