The biggest economic risk? You may be living in it

As a spate of housing data are released in the coming week, Wall Street will attempt to answer a burning question: Is the housing market becoming a big drag on economic growth?

"We are laser-focused on this housing data coming out, because we have seen that the backbone of the recovery was housing. Now it's faltering slightly. So if we see another mishap here, maybe that adds to the slowing global growth-especially domestically," said Jeff Kilburg, chief executive of KKM Financial.

The data start to emerge on Monday morning, when the National Association of Home Builders releases the latest reading on its housing market sentiment index. That widely watched gauge of the housing market rose to a six-month high in July, but is still down on the year.

On Tuesday, the all-important housing starts number will reveal how many residential buildings began construction in July. The July number will follow a big disappointment from June, when 893,000 homes were started on a seasonally adjusted annualized basis-a nine-month low.

Thursday's existing home sales data will round out the week.

Recent indicators have not squelched concerns about housing. On Wednesday, the Mortgage Bankers Association reported applications to buy a house fell to a six-month low in the week prior.

Still, there are some reasons for optimism. According to Freddie Mac, 30-year mortgage rates have fallen to just 4.12 percent, which brings it back to its lowest levels on the year.

Given the decline in interest rates, as well as this year's impressive employment growth, "I would have expected more out of housing," said Stuart Hoffman, chief economist at PNC Financial Services. The weak housing market "is a disappointment, and somewhat of a downside risk to the economy. But with mortgage rates coming down and credit standards loosening, I would expect housing to have a better second half of the year."

So what's the best way to play a housing rebound? Brian Stutland, CIO of Equity Armor Investments is looking to, of all things, gold.

"I'm looking at housing in terms of trading gold, because one thing to figure out here is inflation," he said. "Not only is inflation made of the CPI [or the Consumer Price Index, which showed little inflation in its Friday reading], it's also unemployment, and it's also housing starts, believe it or not. And when we track that there is actually a pretty high correlation between housing starts and gold."

If the housing market gets back on its feet, that indicates good news for the whole economy, which tends to spur inflation. At this point, investors are watching inflation closely, given inflationary pressures could force the Federal Reserve to put an early end to the stimulative measures, which have helped stocks and bonds alike.

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For gold, though, rising inflation is thought to be a boon. As each dollar becomes worth less, it takes more of those dollars to buy the same amount of gold.

"If we get a tick up in the housing starts, I think you're going to see gold start to move higher, because it's an indication that inflation is creeping back here in America," said Stutland of Equity Armor.

-By CNBC's Alex Rosenberg

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