Existing home sales and what it means for gold and the stock market

Donald Trump once said: "Well, real estate is always good, as far as I'm concerned." This is from an individual point of view of course, but can we expect the Existing Home Sales numbers that will be released at 10:00 this morning to be good? Let's take a look at what we can expect and what will be the impact on gold and the stock market.

Existing Home Sales, for those who don't know, basically track the number of existing homes, condominiums and co-ops that have been sold during the month. It is considered a leading indicator for the economy, meaning that where it goes the economy goes (in theory). You can see on the chart above that in 2006 the Existing Home Sales started to collapsed before the financial crisis. The stock market followed right after.

The general expected Existing Home Sales figure is 4.92M for this morning. Generally, we can assume that the stock market and gold have already priced in this expectation. There are three scenarios possible this morning. The first one is that Existing Home Sales are in line with expectations, in which case we shouldn't see gold or the stock market react after the release of this indicator.

The second scenario is that there's a better reading that expected; let's say something around 5.2M. This would send the signal (in theory again) that the economy is improving. We could expect an outflow from gold to other assets in this case, because of the decrease in fear of investors. This, among other factors, could pump the stock market and make it run higher, for now.

The third scenario is a worst than expected reading; let's say around 4.6M. This could signal an economy that is stagnating or losing steam. This situation would be good for gold as investors would want to hedge against a stock market dip. The stock market, when not disconnected with economic reality, should in theory follow a bad Existing Home Sales reading down.

In reality, a lot of other factors are influencing whether gold and the stock market will go up or down. What I'm personally looking for is the second or third scenario, in which case I could profit from a surprising reading.