Gold And Bitcoin Rally Amid Government Shutdown

Topline

Gold prices surged to record highs on Wednesday, following a rally for bitcoin in recent days as investors appeared to search for a safe haven in the wake of the first government shutdown in nearly seven years, though economists noted the broader economic impact could be minimal.

Investors appeared to search for an economic haven as a government shutdown posed uncertainty—with bitcoin viewed as less risky following record highs it has notched under the Trump administration.

Key Facts

U.S. gold futures, relied on by investors to hedge positions, rallied to an all-time high of about $3,922 per troy ounce earlier Wednesday on the New York Mercantile Exchange, though prices pared back earlier gains to settle around $3,900 as of 10:45 a.m. EDT.

The price of bitcoin has rallied nearly 7% over the last five days, including a 2.8% jump so far today, rising from just over $109,000 to around $117,200 as of Wednesday morning.

Gold tends to be favored by investors amid periods of “elevated” economic and policy uncertainty in the U.S., Goldman Sachs commodities strategist Lina Thompson wrote earlier this year, though UBS strategist Joni Teves wrote Wednesday the price of gold could continue to rise as hopes are high for the Fed to cut interest rates again later this month.

Risk assets like bitcoin or equity often decrease in value during these periods, as the Dow Jones Industrial Average, S&P 500 and Nasdaq each declined slightly as of Wednesday morning, though bitcoin—which has risen to record highs during the Trump administration—appeared to be viewed as a less risky investment.

How Does A Government Shutdown Affect The Economy?

While a government shutdown introduces a “new layer of uncertainty” for markets, they tend to be short-lived and result in a minimal impact on the economy, Adam Turnquist, chief technical strategist for LPL Financial, wrote in a note Wednesday. Shutdowns over the last 50 years have lasted eight days on average, Turnquist wrote, and a 34-day shutdown from December 2018 to January 2019 saw a roughly 10% rally for the S&P 500. A 16-day shutdown in October 2013 added about 3.1% to the S&P. That shutdown resulted in a $3 billion loss in economic growth that could not be recovered, however, according to a Congressional Budget Office estimate. Turnquist noted investors will likely prioritize corporate earnings and broader economic trends in the coming weeks.

What To Watch For

A government shutdown could impact whether key economic data is released ahead of the Fed’s policymaking meeting on Oct. 28. The Labor Department said last week the Bureau of Labor Statistics would “suspend all operations” during a shutdown and that data scheduled to be released during the blackout would not be released, including Friday’s planned release for nonfarm payrolls and unemployment data and an inflation report on Oct. 15.

Key Background

The U.S. government shut down for the first time since the 35-day pause in 2018 and 2019 shortly after midnight on Wednesday. The Senate failed to pass a “continuing resolution” that would stave off a shutdown by allowing the federal government to operate under its existing budget through Nov. 21. The House previously passed the GOP-backed proposal, though a vote in the Senate requires at least seven Democrats to back the measure. Senate Minority Leader Chuck Schumer, D-N.Y., accused Republicans of initiating the shutdown ”because they wouldn’t protest Americans’ health care,” while President Donald Trump, House Speaker Mike Johnson, R-La., and other leading Republicans have placed blame on Democrats. The White House’s website displays a shutdown clock and a running chyron which reads, “Democrats Have Shut Down The Government.”