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Gold prices holding above $1,750 as UofM consumer sentiment falls to 54.7

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(Kitco News) - The gold market is holding on to solid gains above $1,750 an ounce as consumer pessimism rises sharply in November and inflation expectations remain persistently high, according to the latest report from the University of Michigan.

Friday, the University of Michigan said the preliminary reading of its Consumer Sentiment Index dropped to 54.7, down from October's reading of 59.9. The data missed expectations as consensus forecasts were calling for a roughly unchanged reading in consumer sentiment of around 59.5.

"All components of the index declined from last month, but buying conditions for durables, which had markedly improved last month, decreased most sharply in November," the report said. "Overall, declines in sentiment were observed across the distribution of age, education, income, geography, and political affiliation, showing that the recent improvements in sentiment were tentative. Instability in sentiment is likely to continue, a reflection of uncertainty over both global factors and the eventual outcomes of the election."

On the inflation front, the report said that consumers expect inflation to remain persistently high, rising 5.1% by this time next year, up from 5.0% expected last month. At the same time, long-run inflation is expected to increase by 3%.

The gold market is not seeing much reaction to the latest economic data as it holds on to impressive gains from earlier in the week. December gold futures last traded at $1,763.30 an ounce, up 0.55% on the day.

Some analysts note that the latest survey continues to create a stable environment for gold as weak sentiment leads to slower growth; rising inflation expectations point to growing concerns of a stagflationary environment.

Paul Ashworth, chief North American economist at Capital Economics, said that it appears the
Federal Reserve's aggressive monetary policy is taking its toll on U.S. consumers.

"As it turns out, higher interest rates appear to have been the dominant factor, with the accompanying write-up suggesting that buying conditions for durables decreased sharply. Consumers managed to hold their heads above water earlier this year when gasoline prices were peaking at well above $5 per gallon. But it will be harder for them to shrug off high interest rates given that the household saving rate is already at an unusually low level," he said.

Some economists have said that the UofM data could add to further expectations that the Federal Reserve will start to slow its tightening cycle.

According to the CME FedWatch Tool, markets have all but priced in a 50-basis point hike next month. Last week there was a 50/50 chance of more aggressive tightening.

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