Gold extends gains on downbeat U.S. construction and sentiment data

Gold extended gains on Friday and hit a new two-month high as overall disappointing U.S. economic data dampened speculations that the Federal Reserve may begin winding down its monetary easing program sooner-than-expected.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December rose to $1 366.30 per troy ounce at 14:27 GMT, up 0.40% on the day. Futures rose to a session high of $1 373.80 in the late European session, the highest since June 18, while days low stood at $1 357.10 per ounce. The precious metal rose more than 1.5% on Thursday, extending current week’s advance to over 3.9% and is set for posting its best weekly performance in five.

Gold extended gains on Friday as another batch of disappointing data indicated that the U.S. economy remains fragile, which eased speculations that Fed will begin decelerating its Quantitative Easing program. Government data showed that U.S. building permits rose by 2.7% to 0.943 million units in July, underperforming expectations for a 2.9% increase to 0.945 million, but still outdoing Junes upward revised reading of 0.918 million.

Meanwhile, the report also showed that U.S. housing starts rose by 5.9% to 0.896 million last month, mismatching projections for an 8.3% surge to 0.905 million. The indicator however marked an advance from last months reading of 0.846 million units, which also received an upward revision from 0.836 million.

A separate preliminary report by the Bureau of Labor Statistics showed that Non-Farm Productivity rose in the second quarter by 0.9%, exceeding expectations for a 0.6% advance. The numbers marked a major improvement compared to the preceding three-month periods reading, which was revised from a 0.5% increase to a 1.7% contraction.

The government agency also reported that Unit Labour Costs surged by 1.4% in the second quarter, compared to a 1.2% rise forecast and a 4.2% decline in the first three months of the year.

Finally, a preliminary consumer sentiment index based on the Reuters/University of Michigan Surveys of Consumers marked a decline in August compared to July. The Preliminary University of Michigan Confidence index fell to 80.0 this month, defying analysts forecast for an advance to 85.3 from Julys reading of 85.1.

The overall controversial data supported speculations that the U.S. economy is still not strong enough to handle an earlier-than-expected tapering of Feds monetary easing program. Dollar-denominated commodities have largely been tracking shifting expectations regarding Feds moves throughout the year as they tend to trade inversely to the greenback. An exit from the stimulus will strengthen the dollar, thus making dollar-priced raw materials more expensive for foreign currency holders and limit their appeal as an alternative investment. Gold is mainly used as a hedge against inflation, which often arises as central banks ease money supply. An exit from a program like Fed’s Quantitative Easing will deliver a heavy blow to the precious metal’s demand prospects.