How Would a US Government Shutdown Affect Gold?

With Washington politicians at an impasse over how to allocate funds next year, it appears likely that the US government will face another shutdown. What will the market response be?

The Latest Developments

• Reportedly, Republicans and Democrats are at an impasse to fund the US government for Fiscal Year 2026, which starts on October 1st.
• If no deal is made, then the US government will shut down, suspending non-essential services.
• Markets in the past have not reacted much to the shutdown, but rising uncertainty, as key government-collected data such as NFP is not published, could support gold prices.

Stocks Rise Into the Shutdown

US stock markets are defying history, with , but could face an important headwind with the start of October: a US government shutdown. A short-term shutdown in the US government typically has little impact on the overall economy, leaving investors unfazed. The essential services of the government continue to operate, with little disruption to day-to-day business operations. But this time, there is a critical timing factor. The Fed's recent shift to dovishness stems from the underperforming jobs market data, with a focus on Friday's NFP report. A government shutdown could cause a delay in the data release, leaving markets uncertain and potentially prompting a shift towards safety until the situation is resolved.

The US federal government's fiscal year starts on October 1, and  for the new year. In the past, Congress has passed a "continuing resolution" (CR) to maintain government funding until a definitive annual budget is approved. During this last fiscal year (2025, which started on October 1, 2024), Congress didn't vote on a definitive spending bill until March. Government shutdowns are relatively rare but have become more frequent lately, typically lasting a few days. While Republicans hold a majority in both chambers of Congress, they don't have the 60 votes in the Senate that are necessary to pass a Budget. This has allowed Democrats to leverage the possibility of a shutdown to demand rollbacks of spending cuts approved by Congress in March as part of Trump's "Big Beautiful Bill." Given the backlash they faced for allowing the March spending package to become law, Democrats are likely more motivated to maintain their position this time.

How Does a Government Shutdown Affect Markets?

Generally,by a government shutdown. In fact, on average, the S&P 500 has risen by around 1% during prior shutdowns, as traders focus on market fundamentals. A shutdown has only tangential effects, which can be imperceptible if it is brief. For instance, the SEC reduces its personnel to maintain its basic functions, resulting in a delay in IPOs until the government reopens. However, such an event does not affect the price of stocks already on the market. Theoretically, uncertainty surrounding fiscal policy should drive interest towards safe havens, such as gold. But past performance shows little direct correlation between a government shutdown and price action. Instead, traders continue to react as data is released or respond to uncertainty if it is delayed. Still, gold appears to defy the norms as it trades at new records.

Gold Scoring Records Ahead of Shutdown

The price of gold reached a new record high on Monday, on track to have its best monthly performance in 14 years. However, this might have left the yellow metal slightly overextended, with the RSI in overbought territory above 70. It could take a breather as it approaches the psychologically important $3,900 per ounce at the top of the upward channel it has been maintaining since mid-September. A turn to the downside could find support at the prior resistance level of $3,780, which is near the middle of the Bollinger Bands. A break below could head toward the nearest swing low of $3,730.

Source: SpreadEx | Gold, spot, 4H chart