Recently, international rating agency Moody’s lowered the U.S. sovereign credit rating from AAA to AA1, marking the first time that all three major rating agencies have removed their highest rating from U.S. debt.
Although this adjustment has drawn significant market attention, analysts point out that the fundamentals of the U.S.—as the world’s largest economy and leading military power—remain unchanged. Consequently, the downgrade itself is expected to have only limited practical impact on the markets.
In response to the news, the U.S. dollar index briefly dipped to the key 100 psychological level before stabilizing near this support line. Technical analyses indicate that the dollar index may have reached its medium-term bottom, limiting further short-term declines. Meanwhile, S&P 500 futures fell roughly 1%, and if they confirm a breach below the late-March high, a more substantial downturn could follow.
One point of interest is the ratio of gold prices to the S&P 500 index. Although this ratio has risen sharply this year, its long-term trend line since 2018 has remained stable. Analysts note that, after smoothing out this year’s fluctuations, gold’s performance largely mirrors that of the U.S. stock market without delivering significant excess returns. Historical data shows that short-term surges in this ratio (as seen in 2006, 2008, and 2011) have often coincided with key peaks in the precious metals market, and the current Relative Strength Index (RSI) already signals an overheated condition.
The HUI index, which reflects the performance of gold mining stocks, has recently dropped below its 2020 high, indicating a technical breakdown. Should another key mining benchmark, the XAU index, also fall beneath its 2022 high, this would further confirm a downward trend in the precious metals sector. Analysts emphasize that the current market environment shares several similarities with the historical tops seen in 2008 and 2011.
Though Moody’s downgrade has triggered some market volatility, experts believe that its impact on the dollar and gold is likely to fade quickly. The real focus should be on the long-term correlation between the precious metals and the stock market, as well as the bearish technical signals emerging. Combining various indicators, analysts conclude that gold prices could face further downward pressure in the coming weeks.
