Strong Economic Data Trip Gold

Gold tends to rally on the prospect of instability and armed conflict, because some investors turn to it as a safe haven in times of crisis.

By the end of the session talk of geopolitics had subsided in favor of business. Back in the U.S., the economy continues to provide bullish economic news, which may auger a strong dollar for the foreseeable future, and hence a bearish environment for gold.

The Commerce Department says December housing starts grew a better-than-expected 4.5%, while the Labor Department says new claims for unemployment fell more than expected last week. December core consumer price inflation, excluding the volatile food and energy components, came in as expected, rising 0.2%.

Foreign exchange dealers weren't that impressed, owing to the view that the housing strength was related to the warm weather last month. The dollar was recently dipping against the euro, but rallying modestly against the yen.

One euro would buy $1.2958, vs. $1.2937 late Wednesday. A dollar would purchase 121.25 yen, up from 120.66 yen previously. Gold tends to move inversely in price with the dollar, and a strong economy will tend to lend support to the U.S. currency.

The economic data were robust enough to have at least one bear backpeddling.

"My view is currently that the probability of an outright recession is somewhat reduced," says Nouriel Roubini, professor of economics at New York University. "The risk of a 'growth recession' is still very high," meaning that the economy will advance, but at less than its potential rate.