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US shutdown fears rise as gold hits record high
The Dollar Index closed slightly lower amid rising risks of a US government shutdown. If Congress fails to reach agreement, the Bureau of Labor Statistics could delay publication of employment data. In parallel, gold reached a new all-time high as investors sought safe-haven assets.
Republican and Democratic leaders met with the US government to discuss solutions to a potential shutdown.
The gold futures contract hit a new all-time high amid US political uncertainty, topping US$3,800 per ounce.
Brent and WTI fell on expectations of increased OPEC+ production and the restoration of an Iraqi pipeline.
Political uncertainty in the US due to the possibility of a government shutdown
The White House met congressional leaders before the end of Tuesday, 30 September, to avert a shutdown. Differences over budget requirements have been recurrent in recent years; however, last-minute solutions have typically been reached. If Congress fails to agree, thousands of federal employees would be furloughed, and various agencies would suspend services.
One of investors’ principal concerns is that the Department of Labor may not publish the employment report scheduled for Friday, 3 October. The Department has indicated that, in the event of a shutdown, it would implement an orderly suspension of programmes and operations. The Bureau of Labor Statistics (BLS) would halt much of its activity, implying non-publication of this week’s employment report. The data are relevant because the Federal Reserve has emphasised that forthcoming policy decisions are data-dependent; an absence of information would be unhelpful for both policymakers and investors.
Despite the political uncertainty, US equity markets were resilient. The S&P500 rose 0.26%, the Dow Jones 0.15%, and the Nasdaq100 0.44%.
Gold higher on US political uncertainty
The gold futures contract (GCZ5) reached a new all-time high on rising shutdown risks. The price reached US$3,859 per ounce, an increase of 1.21% at today’s close. Although shutdowns have often been averted, the associated uncertainty is material given the current political and financial backdrop. Equity markets have been sensitive to headlines in recent months, which helps explain why gold continues to set records as investors seek refuge.
A further contributor to today’s gain was dollar softness: the Dollar Index (DXY) depreciated by roughly 0.25% to approximately 98 points.
Oil down on expectations of OPEC+ supply increase
Brent (BRN) and WTI (CLX5) future contracts closed lower by 3.08% and 3.35%, respectively, erasing much of last week’s rise. The Brent contract closed near $67 per barrel, while the WTI contract settled at $63.5 per barrel. A key factor is growing expectation that OPEC+ will increase output from November, which would add to supply.
OPEC+ meets on Sunday. According to Reuters, a production increase of at least 137,000 bpd is anticipated. In addition, an Iraqi pipeline has resumed crude flows to Turkey. Together, these developments likely led traders to price higher supply, contributing to today’s sharp decline.
Key economic events this week
Tuesday
- China: NBS Manufacturing PMI
- Australia: RBA Interest Rate Decision
- Germany: Inflation Rate (YoY)
- US: JOLTS Job Openings
Wednesday
- European Union: Inflation Rate (YoY)
- US: ISM Manufacturing PMI
- US: ADP Nonfarm Employment Change
Thursday
- Australia: Balance of Trade
- Japan: Consumer Confidence
Friday
- US: Nonfarm Payrolls
- US: Unemployment Rate
- US: ISM Services PMI
