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(Kitco News) - The gold market is seeing some significant weakness Tuesday as December futures contacts move closer in line with spot prices.
According to some analysts, part of the weakness reflects idiosyncratic issues as August futures expire and prices roll over into December. December gold is now the most active contract on the CME and prices started the week trading above $2,000 an ounce. However, the new selling pressure has pushed prices to $1.985 an ounce at the time of writing, down 1.20% on the day.
While spot and futures markets don't always trade in sync, there is a nearly $40 gap between the two markets, which could leave gold sensitive to further selling pressure, according to some analysts. Spot gold last traded at $1,946.80 an ounce, down nearly 1% on the day.
Jim Wyckoff, senior technical analyst at Kitco.com, noted that the spread between prices is "unusually wide."
"The December contract trading above $2,000 suggests traders think gold is going higher," said Wyckoff. "There is a normal 'carry' in forward futures contract months—but not nearly as much as the spread is now. My bias is that Dec and spot will converge in the coming weeks."
Phillip Streible, chief market strategist at Blue Line Futures, noted that throughout 2023, some traders who have been expecting the U.S. economy to slip into a recession by year-end have been playing longer-dated futures contracts and options.
However, he added that some traders are now adjusting their positions as expectations start to shift following stronger-than-expected U.S. economic data.
"We are seeing the market close the gap between futures and spot," he said. "I am watching to see if December gold will hold support at $1,982."
James Stanley, market strategist at StoneX, said that while gold is trading at critical support levels, there appears to be some resilient strength in the marketplace, but added that it is too soon to tell if it will last.
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Stanley also said that he is still quoting August futures as expiration has just started. He pointed out that gold prices are holding crucial support above $1,942.
"Gold is holding that key low from last week while the U.S. dollar continues to push higher," he said. "If $1,942 breaks, there is nothing to stop the price from falling back to $1,900."
Stanley added that risks for gold appear to be on the downside as markets are underpricing U.S. economic strength.
"So far, the U.S. economy has been fairly resilient despite the Fed rate hikes, which could mean that the Fed is not done yet. The Fed can't stop raising rates with inflation above 4%," he said. "Further rate hikes will continue to weigh on gold."
