U.S. Credit Rating Downgraded

Eroding confidence in Washington’s fiscal management, highlighted by repeated political standoffs over the debt limit, led Fitch Ratings on August 1 to downgrade the credit rating of the United States to AA+ from AAA. Fitch pointed to a “steady deterioration in standards of governance.”

Stocks and bonds plummeted on the news, while gold rose, highlighting the importance of holding the precious metal to reduce risk and bring stability to an investment portfolio.

The move by Fitch Ratings came weeks after Congress and President Biden reached a last-minute deal to suspend the debt ceiling until January of 2025. But, over the past two decades Democrats and Republicans have repeatedly quarreled over the debt ceiling, risking a default on U.S. Treasury bills, notes, and bonds, which Wall Street has long portrayed as the safest investment on the planet.

Debt-ceiling brinksmanship in 2011 led Standard and Poor’s that year to downgrade the U.S. to AA+, which also triggered a market selloff. S&P has maintained its rating at AA+, while Moody’s, the other leading ratings agency, has held its rating at AAA.

In cutting its rating, Fitch also pointed to expanding federal deficits, Washington’s failure to address the budgetary challenges of paying for rising social security and Medicare expenses as the population ages, and the risk of a recession, all good arguments for owning gold.