Gold Rally in September

Gold’s rally of over 5% in September is considered “unseasonably strong” by investors at UBS, contradicting historical trends from the past decade.

In their note to clients, analysts remarked that discussions with various market participants reveal growing strength in sentiment towards gold, although full positions haven’t yet materialized. Many investors are waiting for market pullbacks to increase their exposure, but the absence of such opportunities has intensified upward price movements as investors pursue rising prices.

Traders anticipate that cooling returns on gold could occur, especially if US growth accelerates, prompting the Federal Reserve to adopt a more hawkish stance that might keep interest rates high and strengthen the dollar. Nevertheless, any downside risk is predicted to be limited.

The UBS analysts suggested that a consolidation period would benefit the market, allowing weaker positions to be removed while providing long-term investors a chance to enter at better prices.

On Tuesday, gold reached record highs during Asian trading, continuing a surge attributed to a significant rate cut by the Fed last week. Positive sentiment has been further supported by the likelihood of additional borrowing cost reductions later in the year.

Several Federal Reserve officials expressed support for the recent 50 basis point cut but expect a slowdown in those reductions moving forward. Analysts at Citi foresee a total of at least 125 basis points of cuts by year-end.

Lower interest rates are advantageous for gold as they diminish the opportunity cost of holding non-yielding assets. Following the Fed’s decision, both the dollar and Treasury yields fell, paving the way for further gains in gold.