This Tuesday saw some very strong housing starts data out of the US. This is despite the rise of record mortgage defaults that have also been reported. The US housing starts data was 1496K vs 1245K expected and this was up from the prior of 1186K. New starts were up over 20% on the month and permits up over 18%.
So, with mortgages going unpaid and rent not being met, why the housing boom now? Is it just because of low-interest rates spurring fresh demand? Another explanation from a Bloomberg opinion piece is that the US housing market is being used as a means to protect wealth. To be specific that it is against the potential that the Federal Reserve’s huge stimulus package will devalue the dollar.
Warren Buffett warms to gold
Warren Buffett’s Berkshire Hathaway sold large stakes in American banks like Goldman Sachs and JPMorgan in the last quarter. He has moved into areas previously he has ignored. His stake in Barrick Gold hit all the big news wires as Buffett has historically been against holding gold investments. However, is the shift by Buffett an assessment that banks are going to struggle to keep their value as the dollar weakens? However, in contrast, the gold miner’s chief asset, gold bullion, rallies even higher. Even more when fuelled by a weak dollar.
Many analysts have been expressing their concern that the USD is heavily oversold, but there are important fundamental drivers which weaken the USD. The launch of virtually unlimited Quantitative Easing, the drop in safe-haven dollar demand, a high US COVID-19 case count, and the Stimulus Bill political stalemate have all aided the dollar’s fall. Although the FOMC disappointed last night and the dollar gained as the minutes showed reluctance for yield curve control it remains to be seen how, if at all, Fed policy will change. This should keep the demand for non-dollar assets supported and underscores the remaining bullish case for precious metals like gold and silver in the medium term until something changes.