Gold Reaches Record High Amid U.S. Government Shutdown Impact on Risk Appetite
Record-High Gold Prices Amid U.S. Government Shutdown
U.S. Government Shutdown Sends Gold Soaring
Gold prices reached unprecedented heights on Wednesday as the United States entered its first government shutdown in nearly seven years. The lack of agreement among lawmakers on funding added to the uncertainty. Although historically, government shutdowns exert minimal impact on financial markets, the timing is crucial given the delay of critical U.S. jobs data initially scheduled for release on Friday. This postponement could affect the Federal Reserve’s outlook just weeks before its upcoming meeting.
President Donald Trump has indicated potential reductions in federal employee numbers if the shutdown continues. The duration of the shutdown remains uncertain, recalling Trump’s first term, during which a prolonged 34-day partial shutdown became the longest in U.S. history.
Past Market Reactions to Government Shutdowns
| Shutdown Period | Full Days | Type of Shutdown | S&P 500 (%) Net Change | VIX Points Net Change | DXY Net Change | 10-Year Net Change |
|---|---|---|---|---|---|---|
| 12/22/18-1/25/19 | 35 | Partial | 6 | -8 | -2 | -17 |
| 1/20/18-1/22/18 | 3 | Partial | 24 | -2 | 1 | 5 |
| 10/1/13-10/17/13 | 16 | Full | 3 | -1 | -2 | -14 |
| 12/16/95-1/6/96 | 21 | Full | -3 | 4 | 0 | 11 |
| 11/14/95-11/19/95 | 5 | Full | 3 | -1 | -1 | 10 |
| 10/5/90-10/9/90 | 3 | Partial | -5 | 3 | -3 | 2 |
| Average | 1 | 0 | -1 | 4 |
According to Bank of America, the current climate has led to a decrease in risk assets, while gold has continued its upward trajectory, marking its 39th record high this year. Spot gold traded at $3,893.06 an ounce earlier today, with U.S. gold futures for December reaching $3,918.10.
Experts Predict Bullish Future for Gold
Michael Field, chief equity strategist at Morningstar, noted that the U.S. government shutdown triggered the latest surge in gold prices but was only a contributing factor in an ongoing trend. “Political instability, geopolitical conflicts, and new tariffs have created a turbulent environment for investors,” Field commented. “In such times, gold consistently garners appeal.”
Philippe Gijsels, chief strategy officer at BNP Paribas Fortis, expressed confidence that gold would surpass the $4,000 mark. “Gold is nearing our 4,000 target,” Gijsels noted, highlighting the shift from central bank buying alone to increased investor participation since the start of the year. As uncertainties loom, diversifying portfolios with hard assets like gold has become a strategic move for many investors.
UBS Strategist Joni Teves echoed these sentiments, emphasizing that gold is still underrepresented in many investment portfolios. Teves expects the bull market for gold to persist over the coming quarters, supported by weakening dollar rates and expanding investor interest. By the end of 2026, she projects a stabilization of prices at historically high levels, even as favorable economic conditions return.
