Gold performance in September was ‘unseasonably strong’

Investing.com — A rally of more than 5% so far in September has been “unseasonably strong,” defying its historical behavior during the month over the past 10 years, according to UBS investors.

In a note to clients, the analysts said that “recent conversations with various market participants” suggest that views towards the yellow metal are “increasingly strong”, although they are not yet “fully supported by positions”.

“Many continue to wait for pullbacks to increase exposure, but the lack of opportunities has likely amplified these sudden upward moves as investors chase higher prices,” UBS analysts said.

They added that traders generally anticipate that a cooling in gold yields “could be in the cards,” particularly if a re-acceleration in U.S. growth prompts the Federal Reserve to take a “shocking pivot” that could keep interest rates high and could support the dollar. However, they predicted that any downside was likely to be “limited”.

“The market may need a break,” UBS analysts said. “(A) period of consolidation right now would be healthy for the market, especially if it allows some weak longs to be shed and for long-term investors to jump to better levels.”

Gold climbed to record highs in Asian trade on Tuesday, extending a recent streak of gains sparked by a flash rate cut by the Fed last week. Sentiment was also supported by the prospect of further cuts in borrowing costs later this year.

Several Fed officials said Monday they supported the central bank’s 50 basis point rate cut, but expected to slow the pace of cuts in coming months. Analysts at Citi said they expected at least 125 basis points of cuts by the end of the year.

Lower rates bode well for gold as they lower the opportunity cost of investing in non-yielding assets. Dollar and Treasury yields fell after the Fed’s decision, allowing for more gains in gold.