Gold stalls on US housing data, stronger dollar

Prices settle slightly lower as pending home sales data beat expectations.

By TheStreet Staff Feb 27, 2012 5:27PM

Image: Gold (© Anthony Bradshaw/Photographer)the streetGold prices settled marginally lower Friday as the dollar strengthened and after a better-than-expected reading on U.S. home sales offered more evidence of a stabilizing economy.

 

Gold (-GC) for April delivery shed $1.50 to settle at $1,774.90 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,781 and as low as $1,762.60 an ounce, while the spot price was falling $5, according to Kitco's gold index.

 

Silver (-SI) prices added 19 cents to settle at $35.52 an ounce while the U.S. dollar index was rising 0.2% at $78.57.

 

Equities bounced off morning lows after pending home sales data from the National Association of Realtors approached a two-year high in January, with a climb of 2% last month. Market watchers were expecting a more modest 1% rise in January, according to Thomson Reuters, following a 3.5% drop in December. The report said the Realtors are expecting price stabilization and possible price growth this year.

 

"Overall, the direction of the various revisions, along with the January estimate, point to a choppy, though steadily improving trend," said economists at Barclays Capital Research. "As pending home sales progress, existing home sales tend to follow with a month or two lag, which suggests the modest improvement in the housing market is likely to continue."

 

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A stabilizing economy can remove some of gold's haven appeal, as investors look to the metal in times of uncertainty. However, George Gero, senior vice president with RBC Wealth Management, believes gold prices will still find the momentum to reach $1,800 by June.

 

"Reluctance of G20 action (to offer the IMF additional funding) continues to keep new buyers at bay, however some consolidation after a few weeks of up move is not negative," said Gero in a premarket research note. "Low interest rates, two continents with fiscal stimulus, another two continents with geopolitical fears and a large selloff don't seem to be in the cards," he added in a later report.

 

Jon Nadler, senior metals analyst with Kitco Metals, is still eyeing waning physical demand for the metal in India and the U.S. In addition, Nadler sees bullish sentiment for gold rising to a level that, he believes, indicates a correction is due. "Bullish sentiment is approaching certain levels (above 90%, according to trade-futures.com's Daily Sentiment Index) from which previous sharp corrections have ensued," he said.

 

Another factor weighing on gold Monday was a slump in broader commodities, including oil. "It is clear that gold is facing a number of potential negatives," said a report from RJ O'Brien. "In addition to adverse currency market action, the markets are somewhat fearful of global slowing off ultra-high oil prices."

 

Gold mining stocks were largely following the metal and other commodities lower. Among the exceptions were Eldorado Gold (EGO), which rose 0.9% to $15.20, and New Gold (NGD), which gained 0.3% to $11.88.

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