Shutdown Fallout: Will Gold Rally Further as Markets Brace for Equity Volatility This Week?

Government Shutdown Risks Surge as Fiscal Deadline Nears

With the U.S. fiscal year ending September 30, traders are closely watching Capitol Hill as Congress approaches a hard funding deadline.

Failure to pass a spending bill by midnight would trigger a government shutdown on October 1, forcing furloughs, halting economic data releases, and disrupting key regulatory agencies.

Political gridlock over healthcare funding and deepening partisan divides have significantly increased the probability of a prolonged stoppage.

Markets are reacting with caution—focusing not just on headlines, but on the operational risks a shutdown could pose across equities, fixed income, and commodities.

Will the S&P 500 Repeat Its Post-Shutdown Resilience?

Historical data may offer some comfort to equity bulls. Since 1976, the S&P 500 has posted gains in the year following 18 out of 20 government shutdowns. The 16-day 2013 shutdown saw a 3.1% rally, while the 35-day 2018–2019 shutdown delivered a 10.3% gain. LPL Financial notes only four shutdowns since 1976 have meaningfully disrupted operations beyond one day.

But short-term risk remains. Bank of America data shows the index tends to decline 5% on average between the week before and week after a shutdown. The 6% rally during the 2018–2019 episode was a rare outlier, largely driven by a dovish pivot from the Federal Reserve.

With the S&P up 33% from April lows and valuations stretched following 16 new highs in September, traders may treat this event as a trigger for a long-overdue pullback.

Fed ‘Flying Blind’? Shutdown Could Derail Rate Path

A prolonged government shutdown would delay major economic data releases, including jobs and CPI reports, leaving the Federal Reserve without critical inputs ahead of its November meeting. Nomura warns the Fed would be “flying blind,” likely reinforcing its current forecast for two 25-basis-point rate cuts by year-end.

TD Securities expects the resulting uncertainty to steepen the Treasury curve, with the short end reflecting dovish expectations while long-term yields remain elevated.

The 10-year yield stands at 4.149%, with the 30-year at 4.754%. Historically, shutdowns have brought modest declines in yields, but if debt ceiling concerns return, volatility could increase across the curve.

Gold Surges to Record Highs as Dollar Softens

Gold has broken to all-time highs, touching $3,819 per ounce as shutdown concerns weaken the U.S. dollar and push yields lower. The U.S. Dollar Index has slid, providing additional tailwinds for bullion. However, historical patterns show that shutdowns alone have not driven major gold rallies.

During the 35-day 2018–2019 shutdown, gold rose only $20. J.P. Morgan still expects a Q4 average of $3,675 and a Q2 2026 target of $4,000, but current demand appears driven more by geopolitical risk and central bank accumulation.

Goldman Sachs notes the typical post-shutdown dollar drop is minor, suggesting gold’s strength may fade once fiscal clarity returns.

Operational Impact: SEC, CFTC, and Data Flow at Risk

Beyond market psychology, a full shutdown would bring real disruptions. The SEC and CFTC would reduce staffing to minimal levels, delaying filings, enforcement, and trader position reports.

Economic growth could take a hit, with Goldman Sachs estimating a drag of 0.15 to 0.2 percentage points on quarterly GDP for each week of shutdown.

The 2018–2019 event reduced output by $11 billion over two quarters, with $3 billion permanently lost, according to the CBO. For the Fed, data gaps could paralyze rate decisions at a time when policy uncertainty is already high.

Market Forecast: Expect a Volatility Spike, Followed by Rotation

Traders should prepare for a two-phase response. Near term, the VIX could spike, equities may pull back 3–5%, and Treasuries, gold, and defensive sectors are likely to outperform. Real estate and energy historically hold up well during shutdown periods, while tech and utilities tend to lag.

Still, the broader impact is likely to be modest and short-lived—so long as the shutdown is brief. Goldman Sachs notes markets finished flat or higher following the last three extended shutdowns. If history holds, political pressure should drive resolution, unlocking a rebound.

Any material weakness—particularly in growth names—could offer tactical entry points, especially given the Fed’s easing bias and resilient earnings backdrop. Use volatility to your advantage. Shutdowns rarely change the long-term market story.

More Information in our Economic Calendar.