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The credit rating downgrade of the US by Fitch resulted in gold prices gaining slightly, said a senior official of Geojit Financial Services.

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

Be that as it may, a policy rate cut by the US Federal Reserve combined with higher-than-average inflation will result in a structural up move in gold prices, said Quantum Asset Management Company (AMC).

In a report on the outlook for gold in the month of August Quantum AMC said: “Over the medium term, despite the "higher for longer" rhetoric, lower inflation along with a slowdown in US growth should lead the Fed to cut rates sooner than it currently states. A rate cut combined with
higher-than-average inflation will result in a structural up move in gold prices.”

Looking back, the report said gold started July on a subdued note, trading near $1900 per ounce levels with the backdrop of the US Federal Reserve’s hawkish hold in June.

Prices gradually moved up during the month as investors stuck to bets of one final interest rate hike in July.

The probability that the Fed will raise its benchmark rate by 25 basis points to a range of 5.25%-5.50% in July was above 90% for most of the month, according to Interest Rate Futures, the report added.

International gold prices ended the month (July) about 2.7% higher.

Domestic prices moved up by about 2.9%. However, there was some volatility along the way, Quantum AMC said.

According to the report, at its July meeting, the American central bank raised interest rates to a 22-year high. But despite this seemingly hawkish move, gold markets firmed up to $1975 per ounce levels given that a) the 25-basis point move was largely priced in and b) the meeting was perceived
as less hawkish than the one in June where Chairman Jerome Powell alluded to two more rate hikes in 2023. This is evident from interest rate futures which post the Federal Open Market Committee (FOMC) meeting continue to see rates peaking at this level.

Further easing in the monthly core inflation numbers for July and August could very well make this the last rate hike in this tightening cycle. On the other hand, any negative surprises on the inflation front could mean more rate hikes. Powell again ruled out any rate cuts in 2023 which capped the upside in gold, the report said.