Gold's September Rally Fizzles Amid Dollar Strength and Higher Interest Rates

The traditional strong September pattern for gold and silver has broken down this year. Historically, September is one of the best months for gold, but in 2026 it dropped by 8.5% for gold and as much as 13.5% for silver. The year-to-date return for both precious metals has turned negative again, with gold down 4% in dollar terms and 1% in euro terms, and silver down 15% and 12% respectively.

The recent sell-off was exacerbated by the start of Golden Week in China, a national holiday week that saw trading volumes plummet. However, this may be an opportunity for investors to buy more gold, as the price drop in yuan terms could incentivize purchases in the jewelry industry and retail trade.

Long-term interest rates in the United States have risen to over 5.3%, their highest level since 2002, while central banks are trying to achieve lower long-term rates through policy rate hikes. This tension between monetary and fiscal policy is highlighted by the sharp rise in the dollar, which accelerated the correction in gold.

The investment case for gold remains intact, with government deficits and debt continuing to rise, eroding the purchasing power of paper money issued by central banks. Physical precious metals offer protection against this chronic currency debasement.