Gold prices suffered a sharp correction in September, with the precious metal losing around 6.5% during the month, marking its worst monthly performance since June. The decline came following monetary tightening by the US Fed as bond yields hit multi-year highs during the month.
However, with the festive and wedding season approaching in India, investors are now assessing whether seasonal demand, central-bank buying and geopolitical uncertainty can help gold recover in October.
Why did gold fall 6% in September?
One of the key pressures came from the US bond market. Global bond yields rose during September as concerns over mounting government debt and fiscal deficits pushed up term premiums. Higher yields increase the opportunity cost of holding non-yielding gold, making the metal relatively less attractive.
The US 10-year Treasury yield touched 5.293% on September 29, its highest level since 2007, according to Vikram Subburaj, CEO of Giottus.com. The stronger dollar also added pressure, with the dollar index touching a more than three-month high on Thursday.
“The key pressure point is the US bond market. The 10-year Treasury yield touched 5.293% on September 29, its highest level since 2007. Higher real yields increase the opportunity cost of holding gold and silver,” said Subburaj.
Geopolitical developments added another layer of uncertainty. Iran said on Wednesday that it had received a US response to its latest proposal to revive the collapsed Gulf ceasefire, days after US President Donald Trump said he had rejected it. Meanwhile, concerns surrounding the US-Israeli war on Iran continued to influence inflation expectations and Treasury yields.
US macroeconomic data also complicated the interest-rate outlook. August PCE inflation stood at 3.4% year-on-year, slightly higher than July but 0.3 percentage points below analysts’ consensus estimates. Markets subsequently reduced the probability of an October Federal Reserve rate hike to around 38% from 51%, although an 87% probability of a December hike was still priced in.
Can gold recover in October?
Despite September’s correction, analysts remain focused on the potential support from India’s festive and wedding demand, geopolitical risks and central-bank purchases.
Rajeev Sharan, Head of Research at Brickwork Ratings, said the outlook remained firm despite the correction.
“Safe-haven buying amid geopolitical tension, sticky inflation and steady central bank purchases continue to support the metal, even as the Fed’s recent hike and a stronger dollar may cap sharp gains,” Sharan said.
According to Sharan, 24-carat gold was trading around ₹1.48 lakh per 10 grams after the correction and a renewed uptick. He expects festive and wedding demand from Dussehra, Dhanteras and Diwali through the winter wedding season to keep demand healthy in value terms.
However, record prices could affect jewellery volumes, with consumers potentially opting for lighter jewellery, coins or digital gold. Sharan expects gold prices to remain firm but range-bound during the festive months, although another sharp rise could weigh on volumes.
Moreover, Dhruv Joglekar, Assistant Fund Manager at Monarch PMS pointed out that as we enter October and step into the vibrant festive season, gold has opened on a steady note near $4,150 an ounce after underperforming with a nearly 6% drop in September. This retreat was driven by multi-decade highs in long-dated US Treasury yields and robust US consumer spending, which raised the opportunity cost of holding non-yielding bullion amid global rate tightening and fiscal deficit concerns.
However, a softer-than-expected August core PCE inflation reading of 0.2% has trimmed the probability of an October Federal Reserve rate hike to roughly 34%, providing a modest buffer, he noted.
“Moving into October, we expect gold prices to find solid support as the market shifts its focus to Friday’s crucial US jobs report for near-term policy trajectory. Backed by the traditional surge in physical demand through the peak festive months of October and November along with Central bank demand, gold is well-positioned to stabilize and potentially catch a strong tailwind once clarity emerges on US inflation,” he said.
Subburaj also noted that oil prices were adding uncertainty by keeping inflation risks elevated and making the Fed’s rate path harder to predict. For Indian investors, the rupee will remain an important factor, as currency weakness can cushion domestic gold prices.
Subburaj advised against aggressive leveraged positions and said investors seeking long-term exposure could consider staggered purchases rather than attempting to identify the exact bottom. Key October triggers include US inflation, jobs data, Treasury yields, oil prices and Fed expectations.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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