Strong New-Home Sales Data Take Steam Off Bullion’s Run
Gold hit a fresh four-month high above $1,345 before pulling back on profit taking Wednesday, but the roughly 1% dip followed a four-session winning streak.
The metal lost steam as the dollar strengthened after a strong report on new-home sales showing that purchases climbed in January to the highest level in more than five years.
“This correction is long overdue,” Phil Streible of RJ O’Brien said of gold, though given the rash of bad housing data recently, he might as well have been talking about the new-home sales report. Real estate has needed some good news lately, in contrast to gold, which is up about 10% on the year and trading above its 200-day moving average.
“The dollar is keeping gold down today,” Bill O’Neill of Logic Advisors told Bloomberg. “Also, physical demand is showing signs of slowdown.”
However, the crisis in the Ukraine continues to support gold, with signs of the Russian military flexing its muscles in the region and questions over whether the nation can avoid a sovereign default.
Uncertainty is running so high that bank runs have swept the Ukraine. “Ukraine is weighing measures to stem cash withdrawals after as much as 7% of deposits were taken from banks during last week’s bloody uprising, underscoring the need for action to fend off a default,” Bloomberg reported. “Withdrawals peaked with as much as 30 billion hryvnias ($3.1 billion) Feb. 18-20.”
“A default could have a destabilizing impact,” Koon Chow of Barclays Capital told the Financial Times. Ukraine could only be a trigger for a return of gloom to emerging markets — but with emerging markets still fragile after the last month’s sell-off, and political crises deepening from Venezuela to Thailand, “we didn’t need much.”
Even more disconcerting is that the situation could erupt into an even larger crisis: “a massive tug of war between the East and the West,” according to the Economic Collapse blog. “The violence in Ukraine is planting the seeds for a potentially much larger conflict down the road. The days of ‘friendly relations’ between the United States and Russia are now gone. Russia is absolutely furious that the U.S. has fueled a violent revolution on its own border, and it is something that Russian officials will not forget for a very long time. In return, U.S. officials are taking an increasingly harsh stance toward Russia. In the end, the seeds that are being planted right now could ultimately blossom into a full-blown conflict between the superpowers in the years to come.”
For now, though, attention is shifting (in the U.S., anyway) to Federal Reserve chief Janet Yellen’s testimony Thursday before the Senate Banking Committee. “The key focus on Thursday will be any and all comments around forward guidance,” Deutsche Bank economist Carl Riccadonna said.
And BK Asset Managements strategist Kathy Lien is looking for clues about the Fed’s stimulus tapering. “There is a lot of discussion in markets about whether the Fed is wise to continue the course of tapering, because we don’t know whether there’s an underlying slowdown after all this disappointing data,” Lien said. “If she downplays weather distortions (and their effect on recent poor economic reports), and reinforces the plan to stick to tapering, it’ll still lift the greenback.”
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