Gold Hits Record High as US Government Shutdown Looms

The Dow Jones, S&P 500 and Nasdaq indices all rose on Monday – by 0.15%, 0.26% and 0.48%, respectively - as equity markets appeared to shrug off concerns over a potential government shutdown in the US.

Gold Hits Another Record High

Another week, another record high for gold, with the precious metal surging past $3,800 an ounce for the first time on Monday. 

Investors have flocked to the safe haven amidst expectations of further interest rate cuts and fears of a US government shutdown. 

On Friday, the US Personal Consumption Expenditures (PCE) Price Index was reported in line with forecasts, reinforcing expectations that the Federal Reserve will cut rates two more times before the end of the year. 

According to the CME FedWatch tool, markets are currently pricing in an 89% chance that the Fed will cut rates by 25 basis points at its October meeting and a 70% chance of a further 25 basis point cut in December. 

The latest gains mean that gold is up more than 11% in September, putting it on course for its best month in 14 years. Year to date, the precious metal has soared by approximately 46%.

US Government Shutdown Looms

On Monday, US vice-president JD Vance warned that the government was “headed to a shutdown”, as Republican and Democrat leaders in Congress fail to agree on a spending bill. 

Although the Republicans hold a majority in both chambers, in the Senate, they are short of the 60 votes they need to pass spending bills, meaning they require the support of at least some Democrats. 

Congressional leaders will need to come to an agreement before the end of Tuesday to avoid a government shutdown, which would start shortly after midnight on Wednesday morning. 

A shutdown would mean the closure of many public services, as non-essential government employees are put on unpaid leave.  

The Bureau of Labor Statistics (BLS) has already confirmed that it would “suspend all operations” in the event of a government shutdown and that “economic data that are scheduled to be released during the lapse will not be released”.  

This means that Friday’s important jobs report would not be released as scheduled and, depending on how long a potential shutdown lasted, it could also impact the Consumer Price Index (CPI) report, which is scheduled for 15 October.

Oil Prices Sink on Fears of Oversupply

Crude oil prices dropped sharply on Monday and continued declining on Tuesday morning on concerns of oversupply in the market. Benchmarks Brent crude and WTI closed Monday’s session with losses of 2.4% and 3.1%, respectively. 

The decline in prices came as the market mulled another potential production increase from OPEC+ and the resumption of oil exports from Kurdistan to Turkey. 

OPEC+ is due to meet on Sunday, and it is reported that it is likely to approve another production increase of 137,000 barrels per day in November, as the group attempts to regain market share. 

Furthermore, crude exports from Iraq’s Kurdistan region to Turkey resumed on Saturday for the first time in more than two years, as Iraq reached an agreement with Kurdistan’s regional government. On Friday, Iraq’s oil minister stated that the agreement will allow 180,000 to 190,000 barrels per day to flow to Turkey’s Ceyhan port. 

The potential US government shutdown has also raised concerns over demand, which is also weighing on prices on Tuesday. 

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