Tue. Sep 26th, 2023
    The Gold Market Tests Resistance as Sentiment Sours and Inflation Eases

    The gold market has seen a boost, with prices reaching session highs and testing resistance around $1,950 an ounce. This surge comes as U.S. sentiment appears to be souring, and inflation pressures start to ease.

    The University of Michigan recently released its preliminary reading of the Consumer Sentiment Index, which fell to 67.7 from August’s reading of 69.5. While this data missed expectations, it is still 35% above the all-time historic low reached in June 2022. However, it remains shy of the historical average reading of 86. The director of Surveys of Consumers at the UofM, Joanne Hsu, noted that both short-run and long-run expectations for economic conditions have improved modestly this month. Despite this, consumers remain relatively tentative about the trajectory of the economy.

    In response to the disappointing data, the gold market is experiencing renewed safe-haven demand. December gold futures last traded at $1,951.40 an ounce, representing an increase of nearly 1% for the day.

    Interestingly, easing inflation pressures have also helped support gold prices. Consumer expectations for inflation to rise by next year have decreased to 3.1%, down from 3.5% reported in August. Analysts suggest that these lower inflation expectations could give the Federal Reserve room to shift its hawkish monetary policy stance to a more neutral bias.

    Recent reports indicate that both short-term and long-term inflation expectations are declining. One-year inflation expectations have dropped to their lowest level since March 2021, while long-run inflation pressures have fallen to 2.7%. This downward trend in inflation is seen as an encouraging sign for Fed officials, who hope for sustained decreases in core inflation.

    Overall, the gold market is experiencing positive movements as U.S. sentiment weakens and inflation pressures ease. Investors are turning to gold as a safe-haven asset, driving up prices in the process.

    – University of Michigan
    – Capital Economics