US credit downgrade would send gold to 3290

Gold prices post the worst weekly loss in six months. The precious metal fell more than 4%, briefly threatening to break below its medium-term upward trendline. However, buyers quickly stepped in to capitalize on the dip, opening long positions and limiting further downside. Prices ultimately held within the broader uptrend, and with shifting market dynamics, conditions now favor a strong rebound. The bulls’ first key target sits at 3290.

Just as the US-China trade negotiations drama faded from center stage, a new catalyst emerged to drive gold purchases. Moody's has now followed its counterparts at Fitch Ratings and S&P Global Ratings in downgrading the US credit rating. The decision reflects America's rapidly expanding budget deficit, which shows no signs of slowing. While the US economy retains significant strengths, they no longer fully offset the deteriorating fiscal metrics.

A new Reuters survey reveals that analysts and institutional investors are largely dismissing gold's current price decline. Ole Hansen of Saxo Bank advises maintaining composure and using price dips as buying opportunities for the precious metal. Hansen suggests that once economic data fully reflects the negative impact of US tariff policies, gold will regain its spotlight among traders.

The drop in precious metals prices has already stimulated physical market activity. In India, gold prices have retreated 6.5% from April's record highs, prompting jewelry manufacturers to actively replenish their inventories. Market participants in China and other Asian countries are adopting similar strategies. ANZ analysts estimate that strong physical demand will continue to support gold prices and prevent excessive downward movements.

The Stochastic indicator lines on gold's daily chart have turned upward, generating a buy signal. The nearest target is the 3290 level.

Consider the following trading strategy:

Buy gold at the current price. Take profit – 3290. Stop loss – 3180.