News Bites
Gold holding relatively flat as UofM consumer sentiment rises to 51.1
(Kitco News) - The gold market is holding support around $1,700 but is unable to hold any solid gains as consumer sentiment improves from last month's 40-year lows.
Friday, the University of Michigan said that a preliminary estimate of its consumer sentiment survey rose to a reading of 51.1, up from June's reading of 50.0. The data beat expectations as consensus forecasts were looking for a print of around 49.0.
The gold market is not seeing much reaction to the sentiment data. August gold futures last traded at $1,703.80 an ounce down 0.12% on the day.
Although the headline number was better than expected. The report noted that sentiment remains near historic lows as inflation pressures continue to grow.
“Current assessments of personal finances continued to deteriorate, reaching its lowest point since 2011,” the report said. “Consumers remained in agreement over the deleterious effect of prices on their personal finances. The share of consumers blaming inflation for eroding their living standards continued its rise to 49%, matching the all-time high reached during the Great Recession.”
The survey also shows that inflation fears could have peaked, even if prices remain elevated through 2023. The Survey noted that one-year inflation expectations dropped to 5.2%, down from last month’s level of 5.3%.
At the same time, five-year inflation expectations fell to 2.8%, down from 3.1% reading in June.
“The drop in 5-10 year inflation expectations is an important shift. It shows the Fed has re-established credibility on inflation fighting. It would match the lowest since July 2021,” said Adam Button, chief currency strategist at Forexlive.com.
According to some analysts, the news should provide some good news for gold investors as falling inflation expectations is lower expectation for Fed action.
Ahead of the release of the UofM consumer sentiment report, markets were evenly split regarding expectations that the Federal Reserves raise the Fed Funds Rate by 75 basis points or 100 basis points later this month. However, expectations following the the data appear to be solidifying around 75 basis points.
Paul Ashworth, chief U.S. economist at Capital Economics said that the drop in inflation expectations suggests the Federal Reserve will raise rates by 75 basis points. However, he added that although sentiment has improved and inflation fears have fallen slightly, it still remains a prominent issue for consumers.
“Despite that rebound, confidence is still very, very, low, illustrating that surging inflation - and the damage it is doing to their purchasing power, is a big issue for households,” he said.
