Traditional off-season surge, everyone is bullish, UBS Group AG: It's time for gold to take a break

The 10-year September "off-season curse" seems to have failed? This month, the price of gold unexpectedly experienced a strong surge, with an increase of about 6%.

Some market participants point out that a tactical pullback may be imminent and see it as an opportunity to increase positions. UBS believes that while the overall bullish outlook for gold remains solid, the market may need to catch its breath.

On September 23, UBS analyst Joni Teves released a report stating that the consolidation phase at this time is beneficial for the market, especially if it can force some weak longs to exit and allow long-term investors to enter at better levels.

Gold Goes Crazy! Market Sentiment Heating Up

Typically, September is the off-season for gold prices, as the US dollar tends to be strong, yields rise, and the stock market performs weakly during this month. However, this year is different, with the Fed cutting rates by 50 basis points as scheduled, the US dollar weakening, real interest rates falling, and various factors supporting the price of gold.

Furthermore, ongoing geopolitical risks and the uncertainty of the upcoming US election have also increased investors' willingness to use gold as a tool for portfolio diversification.

UBS points out that another theme in the gold market this year is the prevailing "buy on dips" mentality, with market participants having a stronger bullish sentiment towards gold than ever before, but this sentiment has not been fully reflected in positions.

Analysis suggests that many investors have been waiting for price corrections to increase their positions, but the market has not provided many more attractive entry opportunities. This may also be a key factor in the recent sharp rise in gold prices, as investors are forced to chase higher prices.

Time for Gold to Take a Break

UBS notes in the report that the market may need to take a breather:

"The acceleration of US economic growth has led to the Fed turning hawkish, interest rates rising, and the US dollar strengthening, which will be detrimental to gold. Official sector gold purchases are far below expectations, which may mean that expectations of price increases may need to be lowered, but under unchanged conditions, this is not enough to turn completely bearish."

The speed and magnitude of the rise in gold prices may also lead to a period of consolidation in the market in the short term, especially given recent fluctuations in foreign exchange and interest rates, as well as the pricing already done by the Fed. UBS states that the consolidation phase at this time is beneficial for the market, especially if it can force some weak longs to exit and allow long-term investors to enter at better levels.

UBS also mentions that along with the rising market optimism, there are also concerns among investors about positions.

Recently, COMEX net long positions in gold have surged, mainly driven by new long positions rather than short covering. When comparing the ETF and Comex gold holdings and AUM (assets under management), UBS found that **the ratio is still lower than the levels during the epidemic period and the peak of the bull market years in 2012/13 **

UBS Group AG believes, "Although gold has been highly watched this year and has risen by about 27% since the beginning of the year, the current gold market is not crowded. There is still a lot of room for positions to increase, which should continue to push up the price of gold in the medium to long term."

As of today, spot gold once rose above $2,665 per ounce intraday, hitting a new historical high, with a cumulative increase of 29% this year. Currently, spot gold is trading at $2,654.42 per ounce.

In the coming weeks and months, as economic data is released and the election enters the final "sprint" stage, investors will have to experience some volatility in the gold market. UBS Group AG believes that these factors will provide investors with opportunities to embrace further increases in gold. However, the risk lies in the trend of minor or temporary market corrections this year, as well as the phenomenon of investors being forced to chase highs, which may continue