Gold rallies 4.6% in September as jumbo rate cut, geopolitical concerns stoke investor appetite

Onome Amuge

September saw gold surge 4.6 percent, with the precious metal hitting new highs a record eight times, the most recent on September 26 before posting a minor decrease into the end of the month, the World Gold Council (WGC) reported on Tuesday.

The latest rise in the yellow metal follows strong monthly increases in both July and August, with gold continuing to prove its resilience and appeal to investors amid a turbulent global economic and political landscape.

The WGC gold commentary report stated: “According to our Gold Return Attribution Model (GRAM), gold was pulled higher by a further drop in the US dollar as the Fed embarked on its rate-cutting programme with a somewhat surprising 50bps cut . 

And similar to last month, the main identifiable negative contribution came from a momentum factor: the gold return in the previous month, which, when high, has a tendency to pressure the following month’s return lower. And vice versa.”

In September, the gold rally was bolstered by mounting geopolitical tensions in the Middle East, which have continued to persist into October, and global physically-backed gold exchange-traded funds (ETFs) extending their inflow streak to a consecutive five-month period. 

Notably, North American funds were the largest contributors to the overall inflow, reinforcing the precious metal’s appeal to investors worldwide.

Gold ETFs, which securely store bullion on behalf of investors, play a crucial role in the overall investment demand for gold, which reached a historic high of $2,685.42 an ounce on September 26, powered by the commencement of U.S. interest rate cuts.

After enduring three successive years of outflows amid high-interest rates, the past five months have reversed the trend, with a year-to-date net flow in dollar terms of $389 million.

In September, gold ETFs experienced inflows of 18.4 metric tonnes, valued at $1.4 billion, leading to total holdings of  3,200 tonnes, according to the World Gold Council’s research note.

The Council added that the rising gold price and recent inflows have propelled total assets under management to a new peak of $270.9 billion by the end of September.

The WGC estimated a significant increase in worldwide gold trading volumes in September, with daily volumes rising by seven percent from the previous month to $259 billion and average trading volumes in the over-the-counter (OTC) market climbing by 10 percent to $176 billion.

The 28 percent increase in the gold price this year, combined with the anticipation of future rate cuts by the U.S. Federal Reserve fueled speculation in the gold market, leading to a six percent increase in the COMEX’s total net long position from August to 976 tonnes by the end of September, marking the highest level since February 2020.

Looking ahead, the WGC stated “Equities and bonds have become increasingly correlated over the past two years, a trend we expect to continue.

“Borrowing from a simple macro framework incorporating bond yields and corporate spreads, we are entering a gold-friendly environment of lower yields, wavering spreads and continued elevated equity-bond correlations.”

According to the World Gold Council, against the backdrop of a high correlation between equity and bond markets, as well as the shifting macroeconomic environment, gold offers investors the potential for diversification and a valuable hedge against broader portfolio risk.

In addition to the support provided by central bank buying, the Council projected that increasing demand from key markets such as India, and the return of Western ETF investors, the recent escalation of tensions in the Middle East is likely to further strengthen the position of gold, allowing the precious metal to benefit from the evolving market conditions.