The gold price has increased by 4.26% within a month, breaking through a strong resistance level at $1,500. The upsurge of the precious metal comes after the U.S. housing market saw sales miss expectations in December.
Amidst rising fears of a housing market crash in the medium-term, investors are turning to gold and other safe havens like bonds.
Historically, the price of gold and the U.S. housing market have shown an inverse correlation to a large extent during times of high volatility.
A downturn in the economy does not necessarily sway investors to choose gold over investments in the housing market and vice versa. Rather, if gold rises, it means investors are losing confidence in the housing market; if housing thrives, investors are moving out of safe havens.
According to private investor Adam Katz, it is because housing and gold are two dominant stores of value that investors rely on to keep wealth.
Gold and real estate have historically been the two ways to store real value as they are as real assets as you get. So what happens when the value of one real asset is artificially manipulated? We all know by now what caused the bubble in real estate, but, at the height of the bubble it was unknown to the market that it was a bubble on the verge of bursting.
It is far-stretched to predict that gold will have a 2008-esqe rally due to a decline in house sales in December 2019.
But, the recent rally of gold coincides with the release of housing data from the National Association of Realtors for the month of December. It showed that the home sales index rose by 1.2%, slightly lower than expectations.
Lawrence Yun, NAR’s chief economist, said:
Sale prices continue to rise, but I am hopeful that we will see price appreciation slow in 2020. Builder confidence levels are high, so we just need housing supply to match and more home construction to take place in the coming year.
Home sales are not meeting the expectations of economists and yet sale prices are rising, making it more difficult for supply to meet “healthy demand.”
The substantial increase in the price of gold in the past two weeks comes after the U.S. stock market rose to a record high.
The S&P 500 is still hovering at 3,230 following a 28.8% year-to-date gain, with no imminent signs of a significant pullback.
As top hedge fund managers predict a major slowdown in the housing market in 2020, the price of gold is becoming increasingly likely to position itself for an extended rally throughout the first half of the year.
If gold sees such a strong rally in a short time frame despite a clear increase in optimism towards the equities market, it indicates investors see imminence of instability in key sectors like the housing market.