What Scenarios Will Happen to Commodities When the Shutdown Ends?
Global financial markets are awaiting a political decision in Washington regarding the end of the government shutdown that has been ongoing since early October. If the budget impasse is resolved soon, analysts predict the market will experience a major rebalancing phase, particularly in the prices of gold, oil, and other precious metals.
The prolonged shutdown, lasting more than a month, has slowed economic activity, disrupted official data releases, and undermined market confidence in the direction of US fiscal policy. Therefore, the end of the shutdown could have two opposing effects on the market—short-term and medium-term.
Scenario 1: Shutdown Ends, Market Sentiment Recovers (Pressure on Gold)
In this scenario, a budget agreement is reached and the US government returns to full operation. Economic activity, public services, and federal contract payments will resume as normal.
The immediate impact will be an increase in risk appetite in global markets—investors who previously sought refuge in safe-haven assets like gold will likely begin to shift to riskier assets, such as stocks and corporate bonds.
According to historical data, whenever fiscal uncertainty in the US ends, gold prices typically correct by 1–3% in the first two weeks, as capital flows out of safe havens.
A commodity analyst at Bloomberg Intelligence stated: “Once the shutdown ends, investors will refocus on economic growth and inflation reports. This could reduce the buying incentives for precious metals.”
Scenario 2: Shutdown Ends But Economy Weakens (New Support for Gold)
However, some analysts believe the effects will not be that simple. The weeks-long government shutdown has already caused significant damage to the real economy—from consumption and supply chains to delays in infrastructure spending.
If economic data after reopening shows a significant slowdown or decline in consumer spending, the market will instead judge the Fed's potential to cut interest rates more quickly to prevent a recession.
This situation would actually cause gold prices to rise again, as the US dollar could weaken due to expectations of monetary easing.
A senior analyst at Kitco Metals predicts gold prices could rise towards $4,500 per troy ounce if post-shutdown economic data shows a sharp decline in activity.
"A prolonged shutdown usually leaves economic scars, and that will force the Fed to be more dovish," he said.
Impact on Other Commodities
Brent and WTI oil are likely to see limited gains due to expectations of increased energy demand after government activity returns to normal. However, if the market perceives the US economy as still sluggish, oil prices could quickly fall again.
Silver and copper have the potential to strengthen due to the reopening of previously delayed federal infrastructure projects.
The US dollar may strengthen temporarily, but weaken again if market focus shifts to expectations of a Fed interest rate cut in December.
Medium-Term Outlook
Overall, the end of the US shutdown will shift market focus from politics to purely economics. In the short term, gold could weaken as appetite for riskier assets increases, but in the medium term, the potential for upside remains substantial if the post-shutdown economic effects strengthen the case for the Fed to cut interest rates.
With inflation still above target and growth prospects slowing, analysts expect gold prices to remain stable above $3,950 per troy ounce until the end of the year, with a bullish bias if economic data worsens.
Source: Newsmaker.id
