Case/Shiller Index Rises 1.3% In May; Gold Tumbles

Although there are cautions not to read too much into the data, the Case-Shiller housing price index rose 1.3% in May (not seasonally adjusted) for the second monthly rise in a row. Price rose in 19 out of 20 cities surveyed.


Right around the time the news was released (at 9 AM ET) gold started dropping in earnest, adding to a milder decline that started a half an hour earlier. An hour afterwards, the metal had gone from $1,182 to $1,170.

June New Home Sales Rebound More Strongly Than Expected

New home sales in the U.S. rose by a greater amount than expected last month: they jumped by 23.6% above the downwardly-revised May figure of 267,000, to 330,000. Economists were expecting a smaller rebound, to 315,000. Inventories of unsold new homes shrunk a little.


Gold didn't take the news all that well. From around $1,188 around the time the news was released at 10:00 AM ET, the metal plunged to as low as $1,179.70 before rebounding a little to around $1,182.

Bond Markets Not Signalling Rise In U.S. Inflation

According to a Bloomberg report, as webbed by Business Week, bond market inflation expectations are lowering. Those expectations, measured by the yield gap between five-year Treasuries and TIPS, comp out at 1.69%. This number is significantly lower than the result gleaned by the Thomson Reuters/University of Michigan confidence survey; that number is 2.7% inflation in five years. Both have lowered in the last two months.

As a result, it's unlikely that the Fed will even hint at raising the Fed Funds rate when the FOMC meeting ends tomorrow. Ben Bernanke, in his puzzlement remark, suggested he's not taking gold into consideration as much as other commodities. The lowering of expectations is going to dampen the credibility of the FOMC's inflation hawks.


The article mentions that gold is acting more as a hedge against currency instability. Of course, gold is also acting as a safe haven against sovereign default. The question continues to be, is gold also anticipating future inflation that the bond market isn't?

It's a tough call. The supposed bond vigilantes have been asleep; had they been the force to be reckoned with which they were in the 1980s, real rates would have never gone negative. Short rates are negative now. The sub-1-year rates that have already been booked have been below the rate of inflation in the same timeframe, leading to realized negative real rates of return. So, it can't be said that fixed-income investors are leaning on the U.S. Treasury.

The current 5-year T-note rate is 2.00%. Given expectations and inflation norms, that rate offers about a zero real return. Whatever is exciting the bond vigilantes - if anything - it's not future inflation. Perhaps they've disbanded.

On the other hand, gold's continued advance is compatible with rising inflation, even though other commodities aren't following through right now. In part, that's because commodities outpaced gold last year in percentage terms. Also, industrial metals aren't just geared towards inflation; they won't act as if they were unless inflation becomes serious enough to overwhelm demand droppage due to slowdown expectations. The excess reserves are still out there, even if they're not acting to increase the money supply.

It's hard to see what the inflation picture is going to be. Taking a compromise approach says that inflation wil be dormant in the near term but will pick up later.

Consumer Sentiment, Inflation Expectations Up

The April consumer sentiment number has been released, and it shows an uptick from March. Not only the sentiment numbee increased, but also inflation expectations. "Looking ahead, one-year inflation expectations rose to 3.1% in early May from 2.9% in April."


This result hasn't done much for gold, which endured a sharp drop just before the numbers were released. The release may have interrupted the drop, or coincided with a halt, but it had no effect otherwise.

March Factory Orders Rise 1.3%

That gain was well above expectations. According to a Yahoo! Finance report, orders ex-transportation-goods was up the highest in nine years.

At the moment, manufacturing is the leading star of the economic rebound and economists are predicting that will continue for the rest of the year, helping to offset weakness in other areas. Manufacturers are benefiting not only from the rebound in the United States but also rising demand for U.S. exports as the global economy recovers at a faster rate than had been expected.

Not all sectors shared in the bounty, though.


Gold didn't react all that much to the news, although the metal did drop beforehand and later.

April ISM Factory Index Up To 60.4%

Amongst other economic data, the Institute for Supply Management released its April figure; it's well into expansion territory. The reading of 60.4% is the highest it's been since June 2004, and was slightly above expectations.


Gold backed off a little after it was released, but that back-up was on the heel of a run that took the metal up to another 2010 high.

Consumer Sentiment Up

The University of Michigan's consumer-sentiment index was up for late April, to 72.2 from mid-April's 69.5. The expected number was 71, and ther longer-term trend was stable.

After a nice run that took it above $1,180, gold dipped marginally when the news was released. It's since risen back to above $1,180 again.

President Obama Appoints Three New Members To Fed Board Of Governors

One of them was the widely-anticipated Janet Yellen for the vice-chairship. She's an inflation dove; the others, Peter Diamond, an economist at the Massachusetts Institute of Technology, and Sara Bloom Raskin, the Maryland state banking regulator, aren't as well known but are likely to be dovish too.

Consumer Confidence Way Up

Although the April number is well below the level that would indicate a healthy and thriving consumer sector, it was much higher than expected: 57.9, up from a revised 52.3 for March.


The gold market took heart from the number. After lumbering along below $1,150 until 10:00, it took off shortly after the number was released; it peaked at $1,159.80 as of 10:45.

This take-off represents a bit of a sea change. Formerly, gold would have been depressed by good economic data because of what it implies for Fed interest-rate policy. Now, economic recovery seems to be interpreted as a harbinger of higher inflation. Perhaps the gold market has forgotten the implication it read into good data beforehand.

It seems that I was too pessimistic earlier this morning...

U.S. New Home Sales Jump By 27%

This datum goes beyond exciting to perplexing. New homes sales for March have leapt up by 27% from February's record low, making for the largest month-to-month gain since April 1963. A last-minute rush to take advantage of the new-home tax credit, as well as better weather, were mentioned as causes.

The Marketwatch article that reports on it is laden with skepticism, which says something in itself.

Government statisticians have low confidence in the monthly report, which is subject to large revisions, and large sampling and other statistical errors.

In most months, the government isn't sure whether sales rose or fell. The standard error in March, for instance, was plus or minus 21.1%. Read the full government report.

The government says it can take up to five months to establish a statistically significant trend in sales. Over the past five months, sales have been on a 358,000 seasonally adjusted annual pace, up from 355,000 in the five-month interval through February.

Sales of new homes had fallen four months in a row before March's surprising boom. A federal tax credit for home buyers that expires soon seemed to have little impact on sales until March....

The news hardly affected the U.S. Dollar Index, but the gold market took the opportunity to build upon a rally that started at 9:45 AM ET. As of 10:22, the spot price was $1,145.20 for a gain - yes, a gain - of $3.90 on the day.

Home Sales Up 6.8% In March

Thanks largely to the extension of a subsidy to first-time home buyers, home sales in March increased 6.8% from the downwardly-revised February figure. Compared with those of a year ago, sales were up 16.1%. Although inventories increased 1.5%, house prices have stabilized.

The U.S. Dollar Index benefitted from the news, but gold didn't. The former got up to 81.7, while the latter is still languishing at around $1,134 after an eight dollar an ounce drop around 9:30.

U.S Leading Indicators Rise More Than Expected

The news benefitted stocks more than gold, but the metal did rise a little on the news. The Index of Leading Economic Indicators for March was up 1.4% instead of the expected 1.3%. February's was revised up from a 0.1% gain to 0.3%.

U.S. Business Inventories Rise More Than Expected

They rose 0.5% in February, and January's rise was upwardly revised to 0.2% Expectations were for a 0.4% rise.

The news had little effect on the U.S. dollar and gold.

U.S. Factory Orders Up; Little Effect On Gold

Factory orders for February came in at a 0.6% gain, slightly above an expectation of 0.5%, and January's gain was revised upwards from 1.7% to 2.5%. The number had little effect on gold, even though it could have been interpreted bearishly because of the Fed factor. Evidently, the gold market trusts in "extraordinary period."

U.S. Residential Real-Estate Prices Still Soft, Consumer Confidence Up

The S&P Case-Shiller Index data have been released, and the figures show that housing prices went nowhere during February. Small declines in the raw figures ended up as small gains when seasonally adjusted.

S&P's David Blitzer called the report "mixed," noting, "The rebound in housing prices seen last fall is fading."

The release of this item seems to have put pressure on gold and wind on the greenback's back. Spot gold started sinking right around the time the data were released, and the U.S. Dollar Index rallied. Both trends were amplified somewhat right after 9:05 AM.


Later, the March reading for the Consumer Confidence Index was released. It rebounded from February's revised 46.4 to 52.5. The expected figure was for 51.0. This reading seems to have helped the U.S. dollar; it did not help gold.

Personal Spending, Income In Line With Expectations

Individual spending by U.S. consumers rose 0.3% last month; personal income rose less than 1%. Both results were in line with expectations.

"Today's data was clearly consistent with recent trends," said Scott Hoyt, senior director of consumer economics for Moody's Economy. "Spending isn't blowing us away because consumers are clearly suffering from a lack of income."

Both the gold and the U.S. Dollar Index were unimpressed. The results had little effect, either way.

Gold Drive Down Again Overnight, This Time By U.S. Dollar Strength

The U.S. Dollar Index did break 81, in a big way, overnight. The trigger was a Fitch downgrade of Portugal's debt, driving the Euro below the $1.35 support level, and general Euroland-related woes. The downgrade seemed to come near the end of a run for the Index, suggesting that it had been discounted in advance.

The metal actually held up well last night until morning began. After an initial rally when evening trading began, which took it up to $1,105, gold settled in to a trading range between that level and $1,102. It didn't break down until after 1 AM ET, after which an uneven but long-lasting decline set in. The price hesitated around $1,100 between 2:00 and 3:20, but the metal broke through on the downside and continued to drop. The decline didn't end until just after 6:00, with the price reaching $1,093.00. Since then, gold entered a relief rally that kept it above $1,095, but not by much, until just before 8:00. As of 8:07 AM, spot gold was at $1,094.60 for a drop of $8.20 on the day. The Kitco Gold Index attributed -$10.60 due to a strengthening greenback and +2.40 due to predominant buying.

The Euro indeed broke through $1.35, not to mention below $1.34, and the U.S. Dollar Index has leapt up in consequence. The rise was steady throughout the night, with 81 being sustainably breached to the upside just before midnight. An earlier attempt just before 9:30 wasn't. The rally accelerated at 1:10, followed by a narrow trading range and a slight exhaustion drop, but the big leap took place between 4:35 and 5:05. As of 5:10, the Index was just below 81.5. Two further waves pushed it up to 81.67 by 7:50, after which it quieted down for a little while. As of 8:18 AM ET, the Index was at 81.61.

A Wall Street Journal article attributes gold's drop to the collapsing euro, as do the two following, but also mentions that gold's fall is being buffered by bargain-hunting and physical demand - for now.

"[Gold is] holding quite well despite the euro collapsing," said Michael Kempinski, a precious metals trader at Commerzbank in Luxembourg. Physical buying on gold's dips have given the metal some price support, but with the euro unable to stop its slide against the dollar, gold buyers may hold off in expectation of lower prices, he said.

Also mentioned is the perhaps surprising fact that the SPDR Gold Shares Trust's holdings increased yesterday.

Reuters' morning look also starts off with the greenback's rise, and says that outcome of this week's EU meeting is unlikely to deter Euro bears. It's increasingly rumoured, increasingly credibly, that the IMF will be involevd in any rescue effort.

"If we continue to have nervousness over Europe and the euro, then we are likely to see supported dollar values and therefore slightly weaker gold values," said David Wilson, an analyst at Societe Generale.

The SPDR Gold Trust's holdings increase had a number put to it: a 4.6 ton rise to a total of 1120.079 tons.

A Bloomberg report, as webbed by Business Week, structured the euro's fall as a rising greenback in the introduction, and echoed the point made in the WSJ piece about demand buffering the greenback leap:

“The weaker euro seems set to weigh further in the coming sessions,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. Still, “the scale of buying around and below $1,100 an ounce suggests further pockets of investment diversification will continue to underpin prices.”

It also mentions that the above-noted rumour has been confirmed by a German Finance Ministry official speaking confidentially.

The durable-goods numbers for February showed an increase for the third straight month, although the 0.5% increase was lower than expected. One reason for the shortfall was an upward revision in January's increase. The gold market didn't take to the news very well; it amplified a fall that accompanied the start of regular trading. When 8:15 arrived, the metal began a downturn that took it from $1,095 to $1,088, with five dollars being lopped off between 8:30 and decline's end at 8:40. As of 8:55 AM, spot gold was at $1,090.50 for a drop of $12.30 on the day. The Kitco Gold Index attributed all of the decline to U.S. dollar strength. As for the U.S. Dollar Index, it was up since last read, at 81.74.

So far, the day looks like one of those punctuated by a punctured air pocket. The support given by bargain hunting is already being tested, and may be tested further later in the morning.

Housing Starts Fall, Giving Cushion To Gold

Resales of already-built houses and condos in the U.S. fell 0.6% in February, seasonally adjusted. The 5.02 million sales figure is the lowest in eight months.

Sales of existing homes have fallen three consecutive months after rising steadily through the fall in response to a federal subsidy for first-time home buyers. The tax credit has been restored and expanded to repeat buyers, but there has been no increase in sales yet.

A real-estate economist expressed fears of a double-dip recession if housing sales don't pick up.

The news added a bit of a boost to gold, seeing as it indicates economic weakeness and possible extension of Fed easing. From $1,097 as of just before the number's release, gold moved up above $1,100. As of 10:13 AM ET, it was at $1,102.70 and sported a miniscule $0.10 gain on the day.

Consumer Sentiment Unexpectedly Down A Little

The latest number from University of Michigan's index for U.S. consumer sentiment, as of (early) March, was released; it was lower than expected. It dropped from February's 73.6 to 72.5, despite an expectation for it to be unchanged. The number knocked down the U.S. stock market, but had little effect on the U.S. Dollar Index.

It did, however, have some effect on gold. Amplifying a decline that was kicked off by an unexpectedly strong U.S. retail sales, gold ended up dropping to $1,105.50 as of 10:10 AM ET.

Oddly, both good and bad economic news pushed down gold this morning. Perhaps this dichotomy has something to do with recent weakenss in the market, despite last night's recovery.