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(Kitco News) –
The gold market pared its earlier losses after the release of stronger-than-expected consumer sentiment data that also showed a sharp drop in inflation expectations.
On Friday, the University of Michigan said the preliminary reading of its Consumer Sentiment Index rose to 69.4, well up from November’s reading of 61.3. The data was also significantly above expectations, as the consensus from economists was for a reading of 62.
“Consumer sentiment soared 13% in December, erasing all declines from the previous four months, primarily on the basis of improvements in the expected trajectory of inflation,” said director of consumer surveys Joanne Hsu in the report. “Sentiment is now about 39% above the all-time low measured in June of 2022 but still well below pre-pandemic levels.”
The survey’s consumer inflation data also support the market’s expectations that the Federal Reserve will begin cutting interest rates by the end of H1 2024.
“Year-ahead inflation expectations plunged from 4.5% last month to 3.1% this month,” Hsu said. “The current reading is the lowest since March 2021 and sits just above the 2.3-3.0% range seen in the two years prior to the pandemic.”
Five-year inflation expectations also fell from 3.2% last month to 2.8% in December, matching the second lowest reading since July 2021. “Long-run inflation expectations remain elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic,” Hsu noted.
After gold prices declined following the earlier nonfarm payrolls report, the precious metal saw a bounce following the UofM release. Spot gold has come off session lows of $2,002.67 to trade at $2,011.50 at the time of writing, but it’s still down 0.84% on the session.
“All five index components rose this month, led by surges of over 24% for both the short and long-run outlook for business conditions,” Hsu wrote. “There was a broad consensus of improved sentiment across age, income, education, geography, and political identification.”
Hsu also noted that an increasing number of consumers, around 14%, “spontaneously mentioned the potential impact of next year’s elections. Sentiment for these consumers appears to incorporate expectations that the elections will likely yield results favorable to the economy.”
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