(Kitco News) - The gold market is holding on to solid gains above $1,800 as the market is further supported by mixed U.S. housing construction data.
U.S. housing starts fell 0.5% in November to a seasonally adjusted annual rate of 1.427 million units last month, the Commerce Department said on Tuesday. At the same time, data for October's data was revised higher to rate of 1.434 million units.
The drop in housing starts was slightly better than expected, as economists expected a drop to 1.40 units.
For the year, the construction of new homes are down more than 16%, the report said.
The gold market is holding solid gains following the latest economic report. February gold futures last traded at $1,813.50 an ounce, up 0.89% on the day.
The majority of gold's gains came overnight after the Bank of Japan surprised markets and economists with a slightly less dovish stance on its monetary policy. The U.S. dollar weakened, as a result, providing some new momentum for gold.
While U.S. construction data has proven to be slightly more resilient, the report shows a sharp drop in building permits.
Permits for future homebuilding dropped 11.2% to a rate of 1.342 million units last month. Economists were expecting to see a rate of 1.48 million permits.
Permits fell to the lowest level since June 2020. Annual construction permits are down 22.4% compared to October 2021, the report said.
According to economists, the Federal Reserve's aggressive monetary policy has significantly impacted the U.S. housing sector, which is a significant contributor to the nation's GDP, representing more than 16% of economic activity.
Housing demand has slowed as the Federal Reserve has raised interest rates by 425 basis points this year, its most aggressive tightening cycle in 40 years.
Although the Federal Reserve is slowing the pace of rate hikes, the Fed Funds rate is still going higher. The U.S. central bank said it could raise the terminal rate above 5% in 2023.
Katherine Judge, senior economist at CIBC, said that she expects to see further weakness in the U.S. housing construction sector.
"The weakness in permits was spread across single and multi-family segments, and is in line with plummeting homebuilder confidence that also continues to suggest slower homebuilding ahead amidst still elevated mortgage rates," she said.
