(Kitco News) - Gold futures are on the verge of climbing back over $1,400 an ounce Friday for the first time in more than two months after a much weaker-than-forecast report on sales of new U.S. homes created new doubts about how quickly the Federal Reserve might taper its quantitative easing program.
The U.S. dollar and Treasury yields weakened, which in turn tends to support gold.
As of 11:02 a.m. EDT, gold for December delivery was $25.90, or 1.9%, higher at $1,396.70 per ounce on the Comex division of the New York Mercantile Exchange. September silver was up 65.5 cents, or 2.9%, to $23.69 an ounce.
The surge came after a government report showed that new-home sales fell 13.4% to a seasonally adjusted, annualized rate of 394,000 in July, the lowest since October. Expectations had been for around 485,000. Further, the government revised down the June rate to 455,000 from 497,000.
“The new-home sales fell more than expected,” said Phil Flynn, senior market strategist with Price Futures Group. “People freaked out a little bit.
“When the dollar broke, people bought into the gold. It’s a sign that investment demand is starting to creep back into this market.”
Treasury yields and the dollar fell on ideas that the report could mean the Federal Open Market Committee won’t start tapering next month after all, as many financial-market participants had expected. The euro was up to $1.3397 from $1.3349 five minutes ahead of the report. The 10-year Treasury yield slipped to 2.815% from 2.898% just ahead of time.
The report points to a more mixed economic picture, balancing some of the other data lately that has been stronger, said Sean Lusk, director of commercial hedging with Walsh Trading.
Prior to the report, December gold had been confined to an unusually narrow range of $32.50 this week. Since the end of March, there had only been two other weeks with a narrower band – the weeks that ended on July 19 and June 14.
After the data, however, prices broke above the previous high for the week of $1,384.10. The move into the $1,380s and above the recent highs triggered buy stops, with short covering also occurring, Lusk said. The December futures have been as high as $1,397.90 an ounce, their most muscular level since they were last over $1,400 on June 7.
“There was no other data to trade off of. We had the number and it was very disappointing,” Lusk said. “It was certainly dollar-bearish and gold-bullish.
“It lends to some safe haven buying. The economic recovery is uncertain. This could lead some to conclude that they won’t taper at the September meeting.”
By Allen Sykora of Kitco News email@example.com