The Daily Market Report: Gold Extends Correction on Surge in New Home Sales

24-May (USAGOLD) — Gold dropped to new 5-week low as a surge in new home sales in April further boosted Fed rate hike expectations. The dollar index jumped to an 8-week high as Fed funds futures now put the odds of a June rate hike at 38%; July is now at 58%.

This is either good news indeed, or a really bad omen . . .

Americans Bought The Most New Homes In 8 Years Just As The Median Price Hit An All Time High https://t.co/ItrgaoRrtm

— zerohedge (@zerohedge) May 24, 2016

Did people finally decide to frontrun an anticipated mortgage rate increase? Is the housing bubble re-inflating? Is it bum data that will just get reversed out in the months ahead? Time will tell, but for the time being anyway . . . color me skeptical.

On the other side of the coin today, the Richmond Fed index for May unexpectedly crashed into contraction territory. The index tumbled to -1, well below expectations of 8, versus 14 in April. It was the largest monthly drop on record.

Bottom line: There is still plenty of conflicting data out there. However, the Fed has gotten the market leaning toward acceptance of a hike, so they may just take advantage of the shift in expectations to pull the trigger even if the true health of the economy remains dubious at best.

Part of the reason gold rallied so dramatically in the wake of the December hike is that the Fed made it clear that another hike would not be forthcoming for some time. It’s been nearly 6-months. If they hike again this summer and indicate that it will be another long-while until the next one, gold could well react in the same manner as back in December. This time though, the launch pad may be somewhere around $200 higher.