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February gold futures close back above $2000, a shift in market sentiment?

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First-day notice for gold’s current most active contract month, December 2023

(GC Z23) will occur on November 30. Long-term trend traders are already beginning to initiate new trades in the February 2024 contract (GC G24), as it will become the next most active contract month.

Currently February gold is trading at a premium of about $20 above the December contract. While the higher premium accounts for additional storage, financing, and insurance costs, it also reflects market sentiment.

As of 5:05 PM EST, the most active December contract is down $0.80 and fixed at $1983.50. February gold is fixed at $2002.40 after factoring in a $1.10 decline. The most recent rally began this week when on Monday, February gold traded to a low of $1955.40 and then closed at $1970.30. Gold gained $16.80 on Tuesday, declined by $3.80 on Wednesday, and gained $21 yesterday. Collectively gold gained $40.90 on the week.

This week’s gain reflects a shift in market sentiment. Market participants are now anticipating that the Federal Reserve will begin to cut rates much earlier than formerly anticipated. This new optimism is a result of recent reports that confirm that the United States economy is contracting. From this, market participants derived that the Federal Reserve will cut rates sooner than they have stated. Most importantly, this expectation of earlier rate cuts is conjecture and not rooted in actual statements by any member of the Federal Reserve.

Although multiple Fed officials made comments this week. There was the expression by some for the need to raise rates and others expressed their desire to keep rates where they are at least through the December FOMC meeting.

Traders or toddlers?

Market sentiment is a fickle emotion that shifts quickly even when the fundamentals that shaped that sentiment have not changed. When Russia invaded Ukraine gold prices spiked higher but even though that war continues to this day traders became jaded and continue to focus less on that conflict. When Israel was attacked at the beginning of October gold prices spiked. However, last week when tensions and military operations were intensified gold had a dramatic decline exceeding 3%. It appears market sentiment is akin to a small child and current events that have the potential to change the future of the entire globe are nothing more than shiny objects to traders. These events become irresistible to market participants like keys to a baby, but once the infant can grasp them it is not long before they drop them to the ground for the next glittering object.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer