Gold regains strength on disappointing U.S. pending home sales

Gold rebounded back to positive territory in the late European session following the release of unexpectedly downbeat U.S. pending home sales, which, coupled with last weeks disappointing new homes sales, eased concern that the Federal Reserve will begin tapering its monetary program in as early as September. A U.S. mortgage application activity index also marked a decline.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery rose by 0.12% on the day to $1 421.90 at 14:20 GMT after surging by 0.16% to $1 422.50, minutes after the data was released. The precious metal ranged between day’s high of $1 433.50 per ounce, the strongest level since May 14, and day’s low at $1 413.30 an ounce. Futures surged 1.1% on Tuesday, a fourth consecutive daily gain, and extended current week’s advance to 1.7% after adding 6.3% in the preceding two five-day periods.

Gold traded mostly higher throughout the day as it drew support by safe-haven demand amid uncertainty over a U.S. intervention in the Syrian civil war knocking at the door. The metal plunged toward negative territory during late European trading but rebounded following another batch of negative data from the U.S. housing sector. The National Association of Realtors reported its July Pending Homes Sales Index fell by 1.3%, confounding analysts expectations to remain flat. The reading also surpassed the preceding months 0.4% contraction.

Earlier in the day, the Mortgage Bankers Association reported that its MBA Mortgage Applications index declined by 2.5% in the week ended August 23 following a 4.6% decline in the preceding period. According to MBA data, the decline was due to a 12 basis points rise of 30-year mortgage rates to 4.80%, the highest so far this year. Borrowing costs have climbed more than 1% since May on expectations that the Federal Reserve will begin tapering its Quantitative Easing program this year.

This comes after the U.S. Commerce Department reported on Friday that 0.394 million new homes were sold in the U.S. in July, marking a 13.4% decline. This was the lowest level in nine months and the steepest drop in three years. New Homes Sales completely mismatched projections for a rise to 0.490 million units sold. At the same time, June’s reading received a downward revision to 0.455 million from the previous reading of 0.497 million homes.

The numbers supported some of the FOMC policy makers’ stance that the U.S. economy requires further monitoring before Quantitative Easing is decelerated. St. Louis Federal Reserve Bank President James Bullard, one of Fed’s monetary stimulus supporters, said last week that the central bank should take time and assess the U.S. economy and inflation thoroughly before tapering the bond purchases. He commented for Reuters: “I don’t think we have to be in any hurry. Inflation is running low and we have got mixed data on the economy. We can afford to be very deliberate in our decision making.”.

Atlanta Fed President Dennis Lockhart, a Quantitative Easing supporter, said he will vote yes for decelerating the bond purchasing program if the economic data is supportive. He commented for Reuters: “I would be supportive in September as long as the data between now and then basically confirm the path we’re on. I am confident in a continuation of this sort of moderate growth path.”

Market players will be keeping a close eye on this week’s U.S. economic data to further gauge Quantitative Easing’s tapering prospects. On Thursday, the U.S. Preliminary Revised GDP is likely to have grown by 2.3%, while consumer spending and core consumer spending (Personal Consumption Expenditures) probably surged by 1.8% and 0.8% in the second quarter respectively. Initial Jobless Claims probably fell by 1 000 in the week ending August 24. On Friday, Personal Income and Spending are expected to have advanced in July but at a slower pace than in June. Core PCE on monthly and annual basis likely rose in July and the Chicago PMI and Final University of Michigan Confidence are projected to have advanced in August as well.

The precious metal was supported throughout the day as investors sought safe haven security amid growing concerns over Syrian unrest. The seen by many as imminent U.S. military intervention in the Syrian civil war is likely to spill the conflict over to its neighbors in the Middle East, spurring volatile tension between the U.S. and its Western nation partners and Syrias main supporters, Russia, China and Iran.