Gold's Unseasonable Rally in September

Investing.com reports that gold's rally of over 5% in September is considered "unseasonably strong" by UBS analysts, who note it contradicts historical trends of the past decade.

In their client note, analysts explain that conversations with market participants indicate growing bullish sentiment towards gold, although this sentiment is not yet fully reflected in actual investment positions.

Many investors are waiting for pullbacks to increase their exposure to gold, but the scarcity of such opportunities has intensified recent price increases as chasing behavior becomes prevalent. Analysts predict that gold's returns might cool down, particularly if US growth accelerates and prompts the Federal Reserve to maintain a tight monetary stance, potentially strengthening the dollar. Nevertheless, any decline in gold prices is expected to be limited.

The analysts remarked, "The market could use a breather," suggesting that a consolidation period could be beneficial. This would help flush out weaker long positions while allowing long-term investors to buy at more favorable levels.

On Tuesday, gold reached record highs during Asian trading, driven by a favorable Fed rate cut last week, with optimism for potential future cuts also aiding sentiment.

Several Federal Reserve officials have expressed support for the recent 50 basis point rate cut, but anticipate a deceleration in the pace of reductions ahead. Citi analysts forecast at least 125 basis points of cuts by year-end.

Lower interest rates are advantageous for gold, as they decrease the opportunity cost of holding non-yielding assets. Following the Fed's decision, both the dollar and Treasury yields declined, further propelling gold prices upward.