Strong 1% gain in gold as market sentiment pivots based solely on expectations

As of 4:35 PM EST, gold futures basis most active contract (December 2023) is fixed at $1984.10. However, the December contract will soon expire as the until the first notice day advances. This is why we are focusing on the February 2024 Comex contract which is currently fixed at $2004.20. Both contract months had a gain of just under $20 per ounce.

The most important report today confirmed that the economy United States has begun to contract. That has shaped this recent pivot in market sentiment regarding the timeline for the Federal Reserve to begin rate cuts. The data-dependent Federal Reserve needs supportive data behind its actions. The U.S. weekly jobs claim report did just that because it revealed that jobless claims every week have increased much more than expected.

This report was followed by Wednesday’s U.S. producer price index report which had the largest drop in 3 ½ years. Earlier this week the long-awaited consumer price index report revealed that inflation seems to have steadied at its current rate at least for now.

The Federal Reserve’s dogma of “higher for longer” was revealed when they addressed how high-interest rates may go and how long those rates will remain elevated. However, it does not directly lay out the Federal Reserve’s timeline for interest rate cuts that will follow the completion of their current quantitative tightening which many believe has concluded. The September FOMC meeting statements included economic projections that represent individual sentiment by Fed members for the next three years. What was revealed was an overall consensus by members to not begin the cycle of rate cuts until Q2 or Q3 of next year. While market participants continue to anticipate that rate cuts will come next year the timeline for lift-off of that policy has moved from May to as early as March.

Higher interest rates make haven assets less attractive in that they do not yield any interest. Lower interest rates have the opposite effect making haven assets more appealing in an economic climate of exceedingly low interest rates.

Although individual market sectors are all interrelated because gold and silver are paired against the dollar. Dollar weakness serves to strengthen value and that is precisely what we have witnessed in the last couple of weeks. The dollar hit a high of 106.75 on November 1 and has fallen over 2% with the dollar index now fixed at 104.235. Technically speaking there is no support for the dollar until 102.85.

Wishing you as always good trading,