Is the interest rate cut by the Fed good news for gold to break the curse of September's decline?

Gold investors returning from summer vacation will be eager to see if this precious metal can maintain its record-breaking rally or succumb to the September curse.

Bloomberg reported that since 2017, gold prices have fallen every September. During this period, the average decline in September was 3.2%, undoubtedly the worst performing month of the year, far below the monthly average increase of 1%.

This phenomenon has puzzled economists who believe the market should operate more efficiently, and it is not only limited to gold: September is also typically the worst performing month for the US stock market, with the S&P 500 index averaging a decline of over 1.5% in this month over the past 10 years.

This dynamic is far from reliable. Looking at a 30-year time frame, gold prices actually rose in September. However, the recent weakness can be explained by traders buying gold to establish defensive positions against volatility during the summer months and then selling when the September holiday ends and trading resumes.

Boris, an analyst at FastMarkets, said that before going on vacation, people want to hedge market risks, and one way to do that is to buy gold.

Academic research shows that some investors do enter a "closed-door" mode in the summer, and adding safe-haven gold to their investment portfolios during traditionally volatile periods can provide peace of mind.

Throughout history, conflicts and market crashes often erupt in the summer, and market volatility may intensify, while trading departments are often short-handed and executives are absent.

On the negative side, when September arrives, gold faces inherent resistance. Historically, September is also a month of strong US dollar, which means traders using other currencies have less gold to buy with their money.

Since the beginning of this year, the price of gold has risen by 22%, with an 8% increase since July. Strong purchases by central banks, increased safe-haven demand in the geopolitical tensions, and robust buying of physical gold bars in the over-the-counter market all provide support for the price of gold.

Another factor driving the rise in gold prices is the expectation that the Federal Reserve will begin to ease monetary policy next month.

Federal Reserve Chairman Powell said last week that the time for rate cuts has arrived, but the speed and extent of the rate cuts may be the key to whether the gold price can maintain momentum.

Whether these favorable factors are enough to break the September curse is another question.

Erle Hansen, head of commodity strategy at Shengbao Bank, said that seasonal factors indicate that the next month may be challenging.