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(Kitco News) - The gold market is seeing some new selling pressure and is back to testing support just above $1,700 an ounce. The precious metal is unable to gain any bullish traction following a drop in U.S. housing construction in June.

Housing starts fell 2%  to a seasonally adjusted annual rate of 1.56 million units last month, the Commerce Department said on Tuesday. At the same time, data for March was revised higher to rate of 1.59 million units from the previously reported 1.55 million units.

For the year home construction is down 6.3% the report said.

The gold market started selling off just ahead of the report and remains under pressure in initial reaction. August gold futures last traded at $1,708.10 an ounce, down 0.12% on the day.

The housing market, an important pillar of support for the U.S. economy has strugged through the first half of 2022. The sector is being hit on two fronts, keeping many potential home buyers out of the market.

The Federal Reserve’s aggressive monetary policy stance and significant rise in the Fed Funds Rate, has driven mortgage rates higher. At the same time home prices remain elevated as home inventories remain low.

However, there could be some hope on the horizon. The latest construction data highlighted relatively stable building permits.

Permits for future homebuilding fell less than expected,  dropping 0.6% to a rate of 1.69 million units in March. Economists were expecting to see a rate of 1.64 million permits.

Annual construction permits are up 1.4%, compared to April 2021, the report said.

Katherine Judge, senior economist at CIBC, said that the housing sector could continue to weigh on growth through the second half of the year.

“Combined with the drop in homebuilder confidence in July, that suggests that single-family starts, which contribute more to GDP on a per-unit basis, will remain under pressure ahead. The easing in the pace of housing starts over the second quarter, along with the weakness in home sales, suggest that residential investment was a drag on growth over the quarter,” she said.

Although the Federal Reserve will continue to aggressively rate interest rates, economists said that the latest economic data does not support a move by 100 basis points. Markets are continuing to solidify their expectations for a 75-basis point hike.

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