Gold price takes a tumble as US Dollar gains post fitch downgrad

Gold prices remain stable in Asian trading on Wednesday after a sell-off in New York overnight. This action came after Fitch, a major credit rating agency, downgraded the US sovereign debt rating to AA+ from AAA. Fitch expects the country's financial condition to deteriorate in the next three years, with high and increasing government debt burden and erosion in governance compared to peers rated 'AA' and 'AAA' over the past two decades.

Ironically, at the start of trading, bond prices rose and yields fell due to concerns that risk seemed to outweigh the impact on US government borrowing costs. However, yields have increased significantly in US trading, with the 10-year benchmark bond trading near 4.06% before falling to 4.0% today.

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Rising risk aversion sentiment in the marketplace is not providing much support for gold as investors continue to react to Fitch Rating's announcement, downgrading the U.S. government's long-term debt to 'AA+' from 'AAA.

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DXY has crossed the psychological level of 102.50, which coincides with the 50-day MA. The focus of the bulls will now be on the mid-term trendline resistance.

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Despite disappointing economic data, gold prices remain unaffected due to continued safe-haven demand, which is benefiting the U.S. dollar. December gold prices are currently at $1,971, down 0.20% on the day. Analysts highlight $1,970 as a crucial support level, with a potential drop to $1,900 if it breaks.

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After the employment survey was released, the US dollar (DXY index) declined due to falling Treasury yields. At the same time, gold prices increased to $1,940, influenced by changes in fixed-income investments.