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Gold price holding near session highs as preliminary UofM consumer sentiment falls to 63.4

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(Kitco News) - The gold market is trading at session highs as U.S. consumer confidence falls sharply in March, even as inflation expectations remain persistently high, according to preliminary data from the University of Michigan.

Friday, the University of Michigan said the preliminary reading of its Consumer Sentiment Index dropped to 63.4, down from February's revised reading of 67.0. the data missed expectations as consensus forecasts called for a roughly unchanged reading of around 66.9.

The report noted that sentiment could actually be a lot worse as the survey didn't incorporate the growing U.S. banking crisis, which started last week after U.S. regulators took over Silicon Valley Bank.

"This month's decrease was already fully realized prior to the failure of Silicon Valley Bank, at which time about 85% of our interviews for this preliminary release had been completed," the report said. "Overall, all components of the index worsened relatively evenly, primarily on the basis of persistently high prices, creating downward momentum for sentiment leading into the financial turmoil that began last week."

While holding near session highs, the gold market is not seeing much reaction to the latest economic data. April gold futures last traded at $1,955.20 an ounce, up 1.65% on the day. According to most analysts, gold continues to benefit from safe-haven demand as the banking sector continues to deal with the fallout of tightening market liquidity.

Helping to support gold prices are consumer expectations that inflation will remain above the Federal Reserve's 2% target, even as it continues to fall. The report said that one-year inflation expectations fell to 3.8%, down from February's forecast of 4.1%.

Although inflation expectations dropped to their lowest level since April 2021, the report noted that it is still well above the range seen in the two years before the COVID-19 pandemic.

"Long-run inflation expectations remain elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic. With ongoing turbulence in the financial sector and uncertainty over the Fed's possible policy response, inflation expectations are likely to be volatile in the months ahead," the report said.

Consumer inflation data, fits with expectations from several market analysts. In a recent interview with Kitco News, Chantelle Schieven, head of research at Capitalight Research, said that the green energy transition, waning globalization trends, rising commodity prices and economic uncertainty will all lead to a new higher inflation regime.

"We don't expect to see lower inflation anytime soon based on the way the world is changing," she said.

Although the data doesn’t have a great track record estimating consumption, some analysts have said that it does point to further downside risks for the economy.

“While we don’t put too much weight on the relationship, the latest reading suggests that the strength of consumption earlier this year is likely to fade. Even if consumer sentiment doesn’t take a big hit, we are still concerned about a tightening in bank lending standards, which could weigh on the wider economy,” said Olivia Cross, assistant economist at Capital Economics.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.