Gold market attracting a safe-haven bid as University of Michigan consumer sentiment falls to 57.7

TORONTO (May 13) Gold prices are holding firmly above $2,000 an ounce as consumer sentiment appears to be souring rapidly due to growing recession fears and a potential debt crisis.

Friday, the University of Michigan said the preliminary reading of its Consumer Sentiment Index fell to 57.7 from April's reading of 63.5. the data significantly missed expectations, as consensus forecasts called for a reading of around 63.0.

"Consumer sentiment tumbled 9% amid renewed concerns about the trajectory of the economy, erasing over half of the gains achieved after the all-time historic low from last June. While current incoming macroeconomic data show no sign of recession, consumers' worries about the economy escalated in May alongside the proliferation of negative news about the economy, including the debt crisis standoff," the report said.

Gold appears to be finding solid safe-haven support in initial reaction to the data. June gold futures last traded at $2,023.10 an ounce, up 0.13% on the day.

The report noted that consumers have been fairly resilient while facing last year's inflation threat; however, that resolve is weakening as the economy slows. The report added that political uncertainty surrounding the debt ceiling debate is also weighing on sentiment.

"Throughout the current inflationary episode, consumers have shown resilience under strong labor markets, but their anticipation of a recession will lead them to pull back when signs of weakness emerge. If policymakers fail to resolve the debt ceiling crisis, these dismal views over the economy will exacerbate the dire economic consequences of default," the report said.

Along with its safe-haven appeal, gold also remains an attractive inflation hedge. The report said that consumers expect inflation will remain elevated this time next year, increasing 4.5%. One-year inflation expectations are down slightly from 4.6% reported last month.

However, long-term inflation expectations are starting to tick higher. The report said that five-year inflation expectations rose to 3.2%, the highest reading since 2011.

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