(Kitco News) -The gold market is holding solid gains above $2,400, trading near session highs as consumer sentiment falls sharply and inflation expectations rise in April.
Friday, the University of Michigan said its preliminary consumer sentiment index fell to 77.9, down from March’s upwardly revised reading of 79.4. The data significantly missed expectations as economists looked for sentiment to remain relatively stable at 79.
The disappointing economic data is adding to the solid safe-haven bid in the gold market. June gold futures last traded at $2,421.60 an ounce, up 2% on the day.
The University of Michigan dismissed the drop in sentiment, noting that it has been fairly stable for four straight months, “as consumers perceived few meaningful developments in the economy.”
“Since January, sentiment has remained remarkably steady within a very narrow 2.5 index point range, well under the 5 points necessary for a statistically significant difference in readings,” said Surveys of Consumers Director Joanne Hsu. “ However, a slight uptick in inflation expectations in April reflects some frustration that the inflation slowdown may have stalled. Overall, consumers are reserving judgment about the economy in light of the upcoming election, which, in the view of many consumers, could have a substantial impact on the trajectory of the economy.”
According to the report, consumers see inflation rising 3.1% by this time next year, up from 2.9% in March. The report said expectations have peaked above the range seen in the last two years.
Stephen Brown, Deputy Chief North America Economist at Capital Economics, said that disappointing consumer sentiment could weigh on consumption in the first half of the year.
However, Brown also dismissed the rise in inflation expectations.
“Higher gasoline prices are probably behind the rebound in consumers’ inflation expectations, although the latter are not at a level that should trigger any serious concern,” he said in a note. “Moreover, it’s also worth remembering that the inflation expectations measures have a long history of coming in hot in the provisional release, only to be revised lower again when the final estimate is released.”
