Unseasonably Strong Gold Rally Defies Historical Patterns, Investors Chase Prices Higher - UBS Analysts
The gold market has seen a surprising rally of over 5% in September, going against its usual behavior during this month over the past decade, as reported by UBS analysts. Recent conversations with market participants indicate a growing interest in gold, though this sentiment has yet to be fully reflected in positions.
Investors are waiting for pullbacks to increase their exposure, but the lack of opportunities has led to sharp upward moves as they chase prices higher. There is anticipation that a cooling in gold's returns may occur, especially if the Federal Reserve takes a hawkish stance due to a re-acceleration in US growth, which could keep interest rates high and strengthen the dollar. However, any downside is expected to be limited.
UBS analysts suggest that a period of consolidation in the market would be beneficial at this point, allowing weak longs to exit and long-term investors to enter at better levels. Gold reached record highs in Asian trade, following a rate cut by the Fed and the prospect of further reductions in borrowing costs.
Fed officials have expressed support for a 50 basis point cut, with expectations of a slower pace of reductions in the future. Analysts at Citi predict at least 125 basis points of cuts by year-end. Lower rates are favorable for gold, as they reduce the opportunity cost of investing in non-yielding assets. The dollar and Treasury yields decreased after the Fed's decision, leading to more gains in gold.
In summary, the gold market is experiencing a strong rally in September, defying historical trends. Investors are optimistic about the future of gold, but cautious about potential pullbacks. Lower interest rates and a weakened dollar have supported the recent surge in gold prices. It is important to monitor the Federal Reserve's actions and market conditions for further insights into the future of gold investments.