With the US federal government officially shutting down due to a budget stalemate, gold prices surged on Wednesday, briefly touching $3,899.15 per ounce and coming within striking distance of the key psychological level of $3,900. So far this year, gold has skyrocketed more than 48%. Silver performed even more dramatically, jumping 3.18% to $47.585, hitting a fresh 14-year high.
Rhona O’Connell, Head of Market Analysis for EMEA and Asia at StoneX, pointed out that this shutdown stems from a standoff between Democrats and Republicans over health insurance subsidies. Although the White House supports a temporary funding measure to maintain operations until November 21st, Democrats are insisting on making the subsidies permanent, leading to a funding lapse for twelve core government agencies.
A review of the five US government shutdowns over the past 30 years reveals distinct patterns in gold’s performance:
O’Connell particularly emphasized a unique aspect of the current situation: the Office of Management and Budget has suggested relevant agencies consider permanent layoffs instead of temporary furloughs, which could potentially cause structural damage to the job market.
Weaker-than-expected ADP employment data released on Wednesday reinforced market expectations for Fed rate cuts, further fueling the rally in precious metals. However, analysts warn that gold may currently be in the final “speculative parabolic blow-off top” phase. This was evidenced by sharp intraday volatility that saw prices rapidly erase all gains.
Despite the US Dollar Index dipping only 0.2%, gold managed to surge nearly 0.9% in the early session before quickly retreating, indicating extreme market sentiment.
Market participants highlight three potential reversal triggers:
Notably, if the Bureau of Labor Statistics remains non-operational, the crucial September jobs report scheduled for this Friday will be postponed, depriving markets of a key directional indicator. The 2-year US Treasury yield has already fallen 1.4%, reflecting deepening concerns about the economic outlook.
