Gold’s September Performance Shows “Unseasonably Strong” Trends – UBS

Gold has seen a notable rally of over 5% in September, which analysts describe as “unseasonably strong,” deviating from its typical historical patterns for this month over the past decade. According to analysts at UBS, there has been a noticeable shift in sentiment among market participants regarding the precious metal.

In a report to clients, UBS analysts noted that discussions with various market players reveal an increasingly strong outlook for gold, although this sentiment has not yet translated into substantial market positions. Many investors are reportedly waiting for price pullbacks to increase their exposure, but the current scarcity of such opportunities has intensified price surges as they pursue higher valuations.

Traders are generally anticipating that a slowdown in gold returns might be on the horizon, especially if there is a resurgence in US economic growth prompting the Federal Reserve to adopt a more hawkish stance, which could maintain elevated interest rates and strengthen the dollar. Nevertheless, UBS analysts suggested that any potential declines in gold prices are likely to be limited.

They mentioned that the market might benefit from a pause, indicating that a consolidation period could be healthy. This would provide an opportunity to flush out weaker positions and allow long-term investors to make purchases at more advantageous levels.

Recently, gold prices surged to record levels in Asian trading, fueled by a significant interest rate cut by the Federal Reserve the previous week. Market sentiment has also been lifted by the possibility of additional rate reductions later this year.

Several officials within the Federal Reserve expressed support for the recent 50 basis point cut while suggesting that the pace of future reductions might slow down. Analysts have forecasted at least 125 basis points of cuts by year-end.

Lower interest rates generally favor gold, as they decrease the opportunity cost associated with investing in assets that do not yield interest. Following the Fed’s decision, the dollar and Treasury yields declined, facilitating further gains in gold prices.