(Kitco News) - The gold market continues to hold support above $4,500 an ounce but is struggling to attract new bullish momentum, even as U.S. consumer confidence continues to fall amid rising inflation pressures and growing recession risks.
The Consumer Confidence Index dropped to 93.1 in May, compared to April’s reading of 93.8, the Conference Board announced on Tuesday. Although sentiment declined, the data slightly beat economists' expectations. According to consensus estimates, the market had been expecting a drop to 91.9.
"Consumer confidence edged downward in May as the inflationary impacts of the war in the Middle East intensified," said Dana M. Peterson, Chief Economist at The Conference Board. "Consumer appraisals of current business conditions and the current labor market were moderately less positive compared to last month. This was somewhat offset by modest improvements in consumers' expectations for business conditions and the labor market six months from now. Meanwhile, income expectations eased in May, as those anticipating lower income rose."
The gold market is seeing little reaction to the latest economic data. Spot gold last traded at $4,509.10 an ounce, down more than 1% on the day.
The precious metal continues to react to the ongoing chaos in the Middle East, as the war in Iran drives oil prices higher and generates new inflation fears.
Looking at the components of the report, the Present Situation Index—which measures consumers' assessment of current business and labor market conditions—dropped to 121.2, down 3.2 points from April.
Meanwhile, the Expectations Index—which measures consumers' short-term outlook for income, business, and labor market conditions—rose to 74.4, up from April’s reading of 73.4.
“Consumers' write-in responses on factors affecting the economy continued to skew toward pessimism in May. References to prices and oil and gas increased in frequency for a second consecutive month, while mentions of war, geopolitics, and conflict remained elevated—likely signaling consumers' underlying concerns about the inflationary impacts of the war in the Middle East on their wallets,” the report said.
Although consumer optimism remains strained, Jeffrey Roach, Chief Economist at LPL Financial, said the data show the economy could still see a solid recovery by the end of the year, as the labor market remains relatively healthy.
“Given the current pricing pressures, we would have expected a more dramatic decline in confidence. However, consumers feel the employment situation will improve by the end of the year. Hence, discretionary spending on items such as travel should increase after the temporary hold on spending,” he said. “GDP growth will likely dip as consumers are temporarily cautious, but we could expect a rebound in growth later this year if the geopolitical situation improves.”
