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Gold prices continue to hit new session highs as UofM consumer sentiment drops to 67.7

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(Kitco News) - The gold market has pushed to session highs and is testing resistance around $1,950 an ounce as U.S. sentiment appears to be souring and inflation pressures start to ease.

Friday, the University of Michigan said the preliminary reading of its Consumer Sentiment Index fell to 67.7 from August’s reading of 69.5. The data missed expectations as consensus forecasts were calling for a drop to 69.0.

“Sentiment is currently about 35% above the all-time historic low reached in June of 2022 but remains shy of the historical average reading of 86. Sentiment this month was characterized by divergent movements across index components and across demographic groups with little net change from last month,” said Joanne Hsu, Surveys of Consumers Director at the UofM. “Notably, though, both short-run and long-run expectations for economic conditions improved modestly this month, though on net consumers remain relatively tentative about the trajectory of the economy.”

The gold market is seeing renewed safe-haven demand in initial reaction to the disappointing data. December gold futures last traded at $1,951.40 an ounce, up nearly 1% on the day.

Also helping to support gold in a counter-intuitive move is easing inflation pressures. The report said that consumer expectations is for inflation to rise 3.1% by this time next year, down from 3.5% reported in August.

Analysts have noted that well anchored lower inflation expectations would give the Federal Reserve room to shift its hawkish monetary policy stance to a more neutral bias.

The report said that one-year inflation expectations has dropped to its lowest level since March 2021.

“Throughout the survey, consumers have taken note of the stalling slowdown in inflation, but they do expect the slowdown to resume,” the report said.

Long run inflation pressures also appear to be easing, falling to 2.7%. The report said that this is only the second time inflation expectations dipped ¬†below the narrow 2.9-3.1% range in the last 26 months. 

“Although these measures are volatile and often subject to revisions when the full survey is published later in the month, this is a further encouraging sign for Fed officials that the downward trend in core inflation will be sustained,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.

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