What is the impact of the US government shutdown on gold prices?

The US government is at a standstill due to the Senate's impasse, while gold prices are hitting all-time highs

This time, a constitutional impasse that has forced the US government to shut down is driving up gold prices.

The Senate's Republicans had been trying to pass a bill that would have extended government funding, but they were unable to get the 60 votes they needed from Democrats.

In order to support the bill, Democrats were waiting for changes to health care policy. Both sides are now accusing one another of causing the shutdown, which will cause some aspects of the US government to temporarily stop operating, without making any concessions.

For the first time since Donald Trump's first term in office in 2018, the US government has shut down.

Economists do not believe that the shutdown will significantly affect the US economy, assuming it is not too long. According to Ryan Sweet, chief US economist at Oxford Economics, for instance, the shutdown won't have an immediate impact on the company's projections for US GDP, unemployment, or inflation.

The timing of any upcoming rate cuts by the Federal Reserve (Fed) could be affected, according to Sweet.

"The September move was emphasized by the Federal Reserve as an insurance cut," Sweet stated. "Instead of risking falling behind and having to make more cuts later, a shutdown would probably leave the central bank in a haze regarding the labor market, which would increase support for an October cut.

For gold investors, declining US interest rates are usually a bullish sign. However, this isn't the only explanation for why gold prices are rising due to the US government shutdown.

How the US government shutdown is driving up the price of gold.

Since 2024, the gold price has been rising steadily. The most recent event that is accelerating its run is the US government shutdown.

However, it has made September a particularly noteworthy month for gold. A month later, gold prices reached their most recent all-time high of £3,895, up 12% from £3,476 on September 1.

In general, gold is regarded as a safe-haven investment. Any type of political unrest often causes investors to turn to precious metals as a means of safeguarding their wealth.

Given the United States' leading role in the global economy and the dollar's status as the world's reserve currency, that is especially true for the US.

Investor apprehension has escalated due to the US government shutdown, postponing Friday's important jobs data. "Tradu . com senior market analyst Russell Shor stated. Demand for gold as a safe-haven asset has increased as a result, and prices have increased due to expectations of additional Fed rate cuts.

Additionally, the US dollar, which is usually used to quote gold prices, is becoming more pessimistic due to the shutdown.

On October 1, the first day of the government shutdown, Emma Wall, chief investment strategist at Hargreaves Lansdown, stated, "The dollar slipped again overnight." If past lockdowns are any indication, the outlook is not good.

One of the other, longer-term forces behind the gold price rally is dedollarization, which is further extended by this most recent decline in the dollar.

"In an effort to lessen their reliance on the US, emerging markets have shifted their preference for gold over the US dollar as a store of reserves," Wall said.

Gold prices naturally rise when the dollar declines because it costs more to purchase the same quantity of gold, but the recent rally has outperformed this effect.

According to Neuberger's chief investment officer for private wealth, Shannon Saccocia, "gold prices recently hit an all-time high in real terms, surpassing the safe-haven assets' previous inflation-adjusted peak from 1980."

Implications of the US government shutdown for gold and other assets.

The stock market's response was more measured, despite gold prices rising in the days preceding the shutdown.

Up until September 30, the eve of the government shutdown, the SandP 500 increased for three straight sessions. As of this writing, S&P 500 futures are down 0.5 percent on the morning of October 1, indicating that these gains are about to reverse.

Wall stated that shutdowns have historically been detrimental to the US dollar, US stocks, and bonds.

The United States economy may suffer if the shutdown drags on for too long.

"The longer the shutdown drags on, the higher the economic costs," Sweet said. According to our calculations, a partial government shutdown lowers GDP growth by 0.1 to 0.2 percentage points every week.

"For comparison, a shutdown that lasts the entire quarterwhich has never happenedwould result in a 124 percentage point drop in Q4 real GDP growth.

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