Gold Prices Rise as U.S. Consumer Sentiment Drops and Inflation Fears Mount
Gold prices surged on Friday, nearing session highs, after data revealed a decline in U.S. consumer sentiment and a sharp rise in inflation expectations. The University of Michigan’s Consumer Sentiment survey showed a slight drop in January, highlighting growing concerns about economic conditions and inflationary pressures.
U.S. consumer sentiment dips slightly
The University of Michigan’s preliminary Consumer Sentiment index for January came in at 73.2, down from December’s seven-month high of 74. This reading fell short of economists’ expectations of 73.8.
“Consumer sentiment was essentially unchanged in January, inching down less than one index point from December, well within the margin of error,” said Joanne Hsu, Director of Surveys of Consumers.
While assessments of personal finances improved by 5%, the economic outlook declined by 7% for the short term and 5% for the long term, reflecting growing unease about future economic conditions.
Gold prices react to sentiment and inflation concerns
Gold prices rallied following the release of the sentiment data. Spot gold traded at $2,691.09 per ounce by late morning, marking a 0.78% gain on the day. Prices bottomed earlier at $2,664.07 after nonfarm payroll data and peaked at $2,693.39 shortly after North American markets opened.
The rise in gold prices underscores its role as a hedge against economic uncertainty and inflation, particularly as inflation expectations climb.
Inflation expectations rise sharply
The sentiment survey revealed a significant uptick in both short- and long-term inflation expectations:
- Short-term expectations: Increased from 2.8% in December to 3.3% in January, the highest reading since May 2024.
- Long-term expectations: Rose from 3.0% to 3.3%, marking only the third time in four years that such a substantial monthly increase has occurred.
“These inflation expectations highlight a growing concern about the future cost of living,” Hsu noted. The increases were particularly pronounced among lower-income consumers and self-identified Independents.
Diverging views on current and future conditions
The sentiment survey also revealed a divergence in perceptions of present and future economic conditions. While consumers reported easing concerns about current cost-of-living pressures, worries about the future trajectory of inflation surged.
“January’s divergence in views of the present and the future reflects easing concerns over the current cost of living this month but surging worries over the future path of inflation,” said Hsu.
This deterioration in expectations was observed across political affiliations, with Independents reporting a 3% decline and Republicans a 1.5% drop in their sentiment indices.
Conclusion
The latest consumer sentiment data underscores the complex economic environment facing the U.S., with easing immediate concerns about the cost of living counterbalanced by mounting inflation fears. Gold’s rally reflects investor demand for safe-haven assets as uncertainty around inflation and economic outlook persists. As inflation expectations rise, market participants will closely monitor future economic indicators and policy responses.
