Gold prices near session highs but reaction is muted to drop in U.S. new home sales

October 26, 2020

The gold market remains relatively stable with prices pushing only slightly above $1,900 an ounce as the U.S. housing market remains a strong pillar within the economy, despite some weakness last month.

Monday, the U.S. Commerce Department said that new home sales decreased by 3.5% to a seasonally adjusted annual rate of 959,000 units last month.

The drop in sales comes after the sector saw the highest pace of sales in 14 years in August. The data were weaker than expected as consensus forecasts were calling for a sales rate of around 1.025 million units.

August's strong sales data wer also revised lower to 994,000 units, down from the previous estimate of just more than 1 million. New home sales are counted at the signing of a contract, making them a leading housing market indicator.

In initial reaction, gold prices are seeing a modest rise following the negative housing sales numbers; however, the move is not definitive as prices continue to trade in a fairly tight range. December gold futures last traded at $1,910.30 an ounce, up 0.26%.

Andrew Grantham, senior economist at CIBC, said that although new homes sales dropped last month, the sales pace is still well above pre-pandemic levels.

However, Grantham said that with strong housing sales, U.S. monetary policy, with interest rates at the zero-bound range, is doing all it can to support the economy.

“The emphasis now has to be on developments in fiscal policy, to support areas of the economy still depressed by health concerns, and a vaccine that would help those areas reopen,” he said.

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