Gold (XAU/USD) set to shine if government shutdown drags
The government shutdown is expected to have a limited impact on markets as the tangible effects on growth are small, but gold is likely to remain bid as traders sell some risk
The U.S. government shutdown has now begun. Historically these episodes have had limited market impact, and that’s likely to hold in the coming days, but confirmation of the stoppage adds a modest risk premium. The bigger nuance is the potential delay to Friday’s nonfarm payrolls—and any subsequent official releases if the standoff drags—which deprives markets and the Fed of timely signals just as positioning is skewed toward a dovish outcome on the back of a softening labour market. Headlines about potential permanent layoffs linked to the shutdown add a low-probability, high-impact tail risk that could nudge unemployment higher and trigger a mini growth shock, keeping risk appetite subdued at the margin.
This does not, on its own, strengthen the case for additional rate cuts. Futures continue to imply about a 95% chance of a 25 bp cut at month-end, and a data blackout won’t reinforce that much further unless the shutdown stretches into the FOMC window. If the meeting approaches without fresh official data, the Fed will have to lean on what’s already in hand—evidence of a cooler labour market alongside inflation still above target but within range. In that scenario, a cut remains the base case, but uncertainty around the path beyond October rises and so does volatility.
Cross-asset, gold should remain a useful hedge against policy opacity. Its bid in a shutdown stems from three overlapping channels. First, the real-rates channel: with official data potentially blacked out, the Fed is more likely to err on the side of caution. Even if the base case for an October cut doesn’t change, the perceived path of policy beyond that gets fuzzier, lowering the market’s conviction in higher real yields. A lower or less certain real-yield backdrop reduces the opportunity cost of holding a non-income asset like gold.
Second, the policy-uncertainty/hedge channel: the combination of delayed macro signals and noisier politics (shutdown rhetoric, layoff headlines) lifts demand for portfolio insurance. Gold remains the simplest “left-tail” hedge that doesn’t rely on counterparties, so incremental hedging flows tend to support it while risk appetite is capped.
Third, the USD channel: shutdowns can dent confidence in U.S. governance at the margin; any resulting softness in the dollar mechanically boosts dollar-priced bullion. Even if the dollar chops rather than trends, the first two channels are usually enough to keep a floor under gold while visibility is poor. The main caveat is that a decisively stronger dollar and/or a backup in real yields—for example if bond supply dynamics dominate—would blunt this tailwind. But as long as policy visibility is constrained and growth risks are skewed to the downside, gold’s asymmetry remains attractive relative to risk assets.
Gold (XAU/USD) daily chart
Past performance is not a reliable indicator of future results.
Going forward, with NFP at risk, attention shifts to private and survey data—ADP employment, ISM and S&P Global PMIs, and the University of Michigan sentiment—as well as Fed communications, which continue as normal (speeches, minutes, Beige Book). Treasury auctions also stay in focus as a real-time read on liquidity and demand.