U.S. Government Shutdown Looms as Parties Clash Over Healthcare Policies

The United States government is on the brink of a shutdown as the Democratic Party has taken a firm stance on its demands. The Republican Party in the House of Representatives recently introduced a temporary spending bill aimed at preventing a government shutdown on October 1. However, this bill did not include the healthcare policies that the Democratic Party had been advocating for, leading to a stalemate between the two parties. The absence of a compromise on key issues has heightened the risk of a government shutdown, as the deadline approaches. The Democratic Party's resolute position on healthcare policies has become a significant obstacle in the negotiations, making it increasingly difficult to reach an agreement before the deadline. The situation remains tense, with both parties digging in their heels, and the prospect of a government shutdown looming large.

The root cause of the potential government shutdown lies in the structural rigidity of the U.S. congressional budgeting process. Each year, by September 30, both parties must agree on 12 appropriations bills to ensure the continuity of federal funding. Failure to do so results in the suspension of non-essential services, such as national parks and administrative reviews, and approximately 800,000 federal employees face unpaid leave. Currently, the Democratic Party is pushing for an additional 150 million dollars in social spending, while the Republican Party advocates for a simplified continuation resolution to avoid additional burdens. The meeting between the President and the leaders of both parties this week, which was supposed to resolve the key issues, has instead become deadlocked due to the Democratic Party's insistence on healthcare needs. The probability of a shutdown has been priced in at 25% to 30%, significantly higher than in previous years. The White House Office of Management and Budget has further instructed federal agencies to prepare for large-scale personnel adjustments in the event of a shutdown, prioritizing the reduction of projects unrelated to core priorities such as border security and defense. This not only exacerbates political tensions but also directly impacts market participants' expectations.

Historically, such events have often ended as short-term noise, but the context of 2025 adds complexity. Looking back at the 35-day longest shutdown from the end of 2018 to early 2019, caused by a border funding dispute, resulted in an economic loss of approximately 18 billion dollars. During this period, spot gold prices rose by about 50 dollars per ounce, and intraday volatility surged. After the shutdown ended, gold prices did not see a significant correction but instead continued to rise, driven by the Federal Reserve's "pause on rate hikes" signal. This year's situation is highly similar: the Federal Reserve cut rates by 25 basis points in early September, and the market is pricing in two more cuts of the same magnitude by the end of the year. Analysts point out that a prolonged shutdown would delay the release of key data such as non-farm payrolls and inflation reports, forcing the Fed to "fly blind" and stick to its original forecast path. This means that even if economic signals are unclear, the easing bias is unlikely to reverse. Another analyst added that if investors struggle to assess the depth of the U.S. economic slowdown, the short-term and long-term U.S. Treasury yield spread will widen further, accelerating the steepening of the yield curve.

The regulatory impact is also a concern. A government shutdown would significantly reduce the staffing of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), severely limiting the SEC's ability to review company documents and market supervision, and the CFTC may even suspend the release of most holdings reports. In past similar disruptions, the CFTC delayed the release of futures and options data, amplifying uncertainty for traders. More fundamentally, the suspension of federal publications would slow down the rule-making process, indirectly suppressing the implementation of deregulation measures. One investment strategist noted, "Each week of the shutdown will reduce the affected quarter's GDP by 15 basis points, although the stock market historically recovers quickly, employment market pressure may cause sustained volatility." Another trader observed that the White House's "permanent layoff" contingency plan is elevating the shutdown from a temporary event to a structural overhaul, prompting early risk-averse capital allocation. Although the President's tariff remarks did not directly address the core issues, they have fueled market concerns about global supply chains, further increasing uncertainty premiums.

Gold, as a safe-haven asset, is particularly sensitive to shutdown risks. Spot gold's strong performance this year is due to the low-interest-rate environment, which reduces holding costs, and the net purchases of over 500 tons by emerging market central banks. The repeated shutdown rumors have triggered classic safe-haven logic: as uncertainty rises, the appeal of non-yielding assets increases. This week's 140-dollar surge in gold prices was primarily due to short covering rather than new long positions. Geopolitical factors, such as the ongoing Russia-Ukraine tensions, have added 2% to 3% to the weekly return premium. Analysts emphasize that compared to the 2019 shutdown, this year's volatility has become normalized, with an average monthly range of 150 dollars from January to September, far exceeding the historical average of 80 dollars. If the shutdown materializes, this effect will be amplified, and a weaker dollar will further boost gold's upward momentum.

Technically, gold has rebounded nearly 15% from its mid-August low, with the daily RSI stabilizing around 75, entering the overbought zone. Historical backtesting shows that the probability of a correction after such a rally is over 80%, with an average magnitude of 8% to 10%. Although the MACD shows positive momentum, it is weakening, and the expanding upper Bollinger Band suggests an adjustment window is approaching. On the upside, the 3800-dollar psychological level is the first target, and if it breaks through on shutdown news, the next stop could be the Fibonacci extension level at 3828 dollars. In the longer term, the 3900-dollar trend line is looming. However, the RSI shows early signs of divergence, and short-term momentum may falter before reaching 3800 dollars. On the downside, the first support level is the intraday low of 3729 dollars, and if it breaks, the next level to watch is the previous high of 3700 dollars. A deeper correction could target 3630 dollars, which aligns with both technical and psychological levels. If the shutdown risk materializes, the 3630-dollar level could become a solid support; conversely, if the risk subsides, a quick drop to 3650 dollars could complete a healthy correction. The seasonal demand in late September, such as the recovery of the physical markets in India and China, will buffer potential downward pressure and ensure mid-term support.

In the foreign exchange market, the dollar index appears stable but masks underlying weakness. The shutdown risk boosts demand for safe-haven assets, providing short-term support for the dollar as a reserve currency. However, expectations of Federal Reserve easing are gradually eroding its upside potential. Market pricing shows that the probability of a rate cut in October is close to 90%, down 2 percentage points from the previous day, reflecting the divided views of Fed officials: doves worry about economic downturns, while hawks remain data-driven. A former Fed advisor commented, "The shutdown will repeat the dollar's weakening path of 2019, but volatility may be significantly higher." If the data vacuum persists, investors' assessments of the U.S. slowdown will become more conservative, enhancing the relative appeal of non-U.S. currencies like the euro and yen. Overall, the dollar is likely to trade in a narrow range of 97.50 to 98.00 in the short term, with medium-term pressure from global uncertainty caused by the shutdown.

The bond market's reaction is more direct: the simultaneous rise in 10-year and 2-year yields, with increases of 0.26% to 0.28%, highlights the steepening yield curve. A prominent institution's analysis suggests this is due to the full digestion of rate cut expectations, with investors worried about the lack of economic signals—the shutdown delays data, making it harder for the Fed to shift to a hawkish stance, leading to relatively higher long-term yields. Historical data shows that during similar events, the U.S. Treasury yield curve can steepen by 20 to 30 basis points, exacerbating the cost of borrowing. Traders note, "If the job market is pressured by the shutdown, bond market volatility will directly impact the foundation of the stock market."

In the stock market, while historically insensitive to shutdowns, this time is different: the initial public offering (IPO) process will be disrupted due to SEC approval freezes, dampening recent capital market enthusiasm. The S&P 500 may experience short-term volatility but is likely to recover quickly; the Nasdaq, however, is more susceptible to delays in tech stock financing. Other markets, such as commodities, may face pressure from global supply chain concerns, but gold's safe-haven appeal will dominate the narrative.

Looking ahead to the next week, the September 30 congressional negotiations will be a turning point. If the shutdown occurs (probability 25% to 30%), risk-averse capital inflows will repeat the 2019 gold rally of 50 to 80 dollars, targeting above 3850 dollars, with volatility potentially exceeding the 20% threshold. The dollar index's short-term resilience will turn into weakness, the bond market curve will steepen further, and yields may rise another 10 to 15 basis points. Although the stock market may experience noise, the employment data vacuum will limit deep declines, with the S&P 500 potentially retracing 2% to 3% in the first week of the shutdown. Conversely, if the continuing resolution passes, risk relief will trigger a 5% to 7% gold correction, retesting 3700 dollars, but the Fed's November rate cut expectations will support the mid-term bottom, potentially reigniting a rally to 3900 dollars by the November meeting. The dollar may briefly rebound to 98.00, bond yields may fall slightly, and the curve may converge.

Regardless of the path, the 5% to 10% intraday volatility from the shutdown headlines will become the norm, anchored by the Federal Reserve's easing anchor, and mindful of external premiums from geopolitical events like the Russia-Ukraine conflict. Under the macro outlook, this round of uncertainty may accelerate asset reallocation, with the resilience of gold and bonds reshaping market equilibrium amidst volatility.