Disappointing economic data has bolstered gold, which is trading near session highs following from the National Association of Realtors.
Home sales fell 2.4%, significantly more than projections. On the year, home sales are down 5.9%, which has created renewed technical buying momentum for gold. “Higher home prices and sharply higher mortgage rates have reduced buyer activity,” said Lawrence Yun, NAR’s chief economist. “It looks like more declines are imminent in the upcoming months, and we’ll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years.”
Spot gold jumped 0.9% Thursday morning to $1,830.99 as the U.S. dollar dropped along with Treasury yields. “The dollar is going down and it’s quite natural that gold is appreciating,” said Carlo Alberto De Casa, external market analyst at Kinesis, to CNBC. “Unless the U.S. dollar continues to strain and inflation continues to fight, I don’t see other reason for new, big falls in gold.” Casa noted that $1,790–$1,800 is a key support zone for gold.
Gold had fallen to four-month lows earlier this week amid the dollar’s strength. The yellow metal has also faced pressure from central bank policy stances. Despite the Fed’s hawkish position, gold’s utility as an inflation hedge is very likely to keep it buoyed. Part of the issue is that many investors, including HS Dent founder Harry Dent, are eager to blame stimulus checks as the cause for inflation. “I think the market has already topped, January 4th for the S&P 500, and we’re heading down, and the Federal Reserve is going to find out that their something-for-nothing stimulus didn’t really work in the end, and people are going to find this out only when things crash.”
The reality is that the American Rescue Plan is only a small piece of a much larger inflation pie. Studies have found that the ARP is likely only contributing about 0.3% to inflation in 2021, and less in 2022. The impact will be negligible in 2023.
This means that a host of other factors are impacting inflation, which suggests that the Fed will have more difficulty than anticipated reigning it in. War in Ukraine, supply chain woes, and surging demand for commodities are all playing a part and will not be easy to address.
This is why gold could become increasingly critical as inflation lingers. Investors who want exposure to physical gold can access it through the Sprott Physical Gold Trust (PHYS). Gold equities also sing in periods of persistent inflation, so it is also worth exploring the Sprott Gold Miners ETF (SGDM ) or the Sprott Junior Gold Miners ETF (SGDJ ).
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