The "September Effect": Is gold just undergoing a correction or waiting for a major rally?

Hua Seng Heng indicates that gold prices in September will be volatile due to interest rates, the dollar, and bond yields. They point out the "September Effect" could exert short-term pressure, but geopolitical factors and central bank buying will provide long-term support.

September 8, 2569 – Hua Seng Heng forecasts gold prices to be volatile in September due to interest rate trends, the US dollar, and bond yields. Historical data reflects a “September Effect” that often pressures gold prices in the short term before a potential recovery in the following period. However, fundamental factors in the medium to long term remain supportive, including geopolitical uncertainty and central bank buying.

Global gold prices have begun a correction phase after reaching highs near $4,700 per ounce in August. The upward momentum is slowing after Federal Reserve Chairman Kevin Warsh's speech at the annual Jackson Hole economic symposium on August 28th, where he signaled that inflation risks remain a key concern for the Fed.

Watch stated that inflation remains above the 2% target and the Fed still needs to prioritize price stability. Although no clear forward guidance was provided on the next interest rate adjustment, this stance increased the market's likelihood of a rate hike at the September 15-16 FOMC meeting. Bond yields and the dollar rose, putting short-term pressure on gold prices.

"How does the "September Effect" affect gold?

The "September Effect" is a seasonal phenomenon where financial markets, especially stock markets, tend to yield weaker returns in September. Gold has a similar pattern of performance.

Historical gold price data shows that September is one of the months when gold prices often face selling pressure and average negative returns before recovering in subsequent months. However, past statistics are not a guarantee of future price direction, but they can be used as one factor in assessing market timing.

Therefore, the “September Effect” doesn’t necessarily mean the end of an uptrend, but rather reflects that September might be a period where gold prices face profit-taking and increased volatility before the market reassesssses of the fundamentals towards the end of the year.

What factors might put pressure on gold prices in September?

September of this year presents several key factors that could increase volatility in financial markets, particularly the FOMC meeting on September 15-16, where the Fed will release new economic forecasts and the Dot Plot. Markets are also closely watching inflation trends and labor market data. If economic data continues to reflect inflationary pressures and the Fed signals a continued tight monetary policy, bond yields and the dollar are likely to remain high, putting pressure on gold prices due to the increased opportunity cost of holding gold.

Meanwhile, the bond market faces volatility from concerns about public debt and the US government's borrowing burden, including the Treasury's long-term bond repurchase program, which could cause greater volatility in bond yields during September. On the other hand, investment flows into technology and AI stocks are also a variable to watch, because if confidence in high-growth stocks begins to decline, or if there is selling pressure in risky assets, some capital may return to safe-haven assets such as gold.

Geopolitical factors remain a medium-term support, as tensions in the Middle East continue to impact energy prices and raise inflation risks. Meanwhile, high levels of government debt and strong gold purchases from central banks worldwide continue to provide long-term support for gold prices.

The "September Effect" might just be a period of consolidation rather than a trend shift.

Hua Seng Heng analyzed that although gold prices in September may face pressure from interest rates, the US dollar, and bond yields, there are still no clear signs of a significant change in the medium- to long-term fundamentals of gold. Technically, gold prices have returned to a correction phase after breaking below the 200-day moving average (SMA200) again at the end of August, after previously breaking through it in mid-August.

Hua Seng Heng estimates that gold prices still have the potential to weaken further in the short term, but this correction has key support around $4,200–4,230 per ounce, or approximately 66,500–66,800 baht per baht weight of gold. If the price can hold above this level, there may be a chance of buying pressure and a recovery in the next period. Meanwhile, the key resistance level is at around $4,530 per ounce. If the price rises above this level again, it will confirm that the upward momentum is starting to return.

Investors should use September as a time to monitor bond yields, the US dollar, the FOMC meeting results, and the technical structure of gold prices simultaneously, because the market direction will not be determined solely by the "September Effect," but by the market's response to inflation, interest rates, and macroeconomic risks at the end of the year.

Overall, the “September Effect” may put short-term pressure and volatility on gold. However, if key support levels remain strong and fundamental factors such as geopolitical uncertainty, public debt, and central bank buying continue, a correction in September may only be a temporary pause in the overall trend rather than a signal of the end of the uptrend.

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