Gold Prices Surge Amid U.S. Shutdown

The American Government Shutdown Sparks Gold Surge and Financial Uncertainty on Global Markets

As one of the world’s leading economies, every political and financial ripple in the United States reverberates through international markets. The recent partial shutdown of the American government — the first such instance since late 2018 — has once again demonstrated the fragility of the global financial system, particularly when the future of the dollar is thrown into doubt. The effects are evident in the soaring price of gold, shifts in investor sentiment, and the heightened scrutiny surrounding currencies pegged to the dollar — such as the UAE dirham.

Direct Effects of the U.S. Government Shutdown

The partial shutdown was caused by a political deadlock within the U.S. Congress, as the budget bill could not be passed by the deadline. Consequently, around 800,000 federal employees were forced into unpaid leave, while those providing “essential” services — like air traffic controllers or transport security officials — continued working without pay. Such situations do not only inconvenience American citizens — like passport processing delays, national parks, and museums closures — but also impact financial markets.

Gold as a Safe Haven

Investors reacted promptly: gold became the most popular safe haven asset in these uncertain times once again. The precious metal’s price surged significantly, as investors sought a secure harbor amid political and economic storms. Throughout 2025, gold prices showed continuous growth, supported by strong purchases from central banks and China’s ambitions to use the yuan and gold as alternative settlement mechanisms to the dollar in trade.

Beijing, for example, took steps to encourage trading partners to hold their trade surpluses in gold instead of U.S. dollars — stored in Shanghai. This strategy could lock up 15–20% of the world’s annual gold production, adding further pressure to the global supply.

Currencies Pegged to the Dollar, such as the UAE Dirham

The stability of the dirham is closely tied to the performance of the U.S. dollar, as the currency is pegged at a fixed rate (3.6725 dirhams = 1 dollar). While the peg system provides macroeconomic stability for the UAE, the weakening of the dollar’s external value can have indirect effects.

A weaker dollar, for instance, may result in imported inflation, as the dirham weakens against currencies like the euro and the British pound. This could mean higher prices for imported goods and affect tourism, as purchasing power shifts. It may also impact remittances; a weaker dollar represents less value compared to other currencies, thus reducing the purchasing power of funds sent home.

Investor Sentiment and Stock Market Reactions

While at first glance a government shutdown might seem negative for stock markets, past experiences show that the impact is not always straightforward. For example, during the 2018–2019 shutdown, the S&P 500 index rose by 10%. This was partly connected to the changes in the Fed’s interest rate policy, which signaled a looser monetary direction at the time.

However, the situation is now different: investors primarily fear the lack of U.S. macroeconomic data, which markets rely on as a guide. The absence of official employment figures, for example, complicates the assessment of monetary policy prospects, thereby increasing uncertainty.

Risk Management in the Current Environment

In the current situation, investors are reevaluating their strategies and turning to assets that hold more tangible value. Alongside gold, these include the Japanese yen, Swiss franc, and even certain Western European currencies. This not only changes the composition of investment portfolios but may also rearrange international currency markets.

Partial U.S. government shutdowns have occurred approximately 20 times since 1976, often lasting less than a week. Yet, each such event gradually undermines the trust in the global financial system, fundamentally built around the U.S. dollar.

Outlook for the UAE

For the UAE and other countries using a currency pegged to the dollar, the dollar’s stability remains crucial. The peg system provides predictability in budgeting, import-export processes, and investment planning. However, every American political crisis highlights once again that the world’s reserve currency is not immune to the fluctuations caused by political turmoil.

In the future, it will be important for the UAE to continue pursuing a diversified economic policy and invest in assets — such as precious metals, alternative currency reserves, or new trade partnerships — capable of offsetting risks stemming from dollar fluctuations.

Summary

The political uncertainty in the United States is not just a domestic issue but affects worldwide financial stability. The rise in gold prices, uncertainty surrounding the dollar, and the situation of dollar-pegged currencies, such as the UAE dirham, all indicate that investors and countries are reassessing their exposure to the world’s leading currency. In this dynamic environment, foresighted financial and economic decisions become crucial — not only for the United States but also for globally exposed economies like Dubai.

(Source based on events within the USA Congress.)