Decrease in Gold Prices Corresponds with Rise in February's Preliminary Consumer Sentiment and Persistent Elevated Inflation Forecasts

The gold market continues to experience selling pressure, causing prices to drop further from $1,900, as consumer sentiment improves more than expected and inflation expectations remain elevated.

Recently, the University of Michigan reported that its preliminary Consumer Sentiment Index rose to 66.4, surpassing January’s reading of 64.9 and exceeding expectations for a reading of 65.0. This marks the third consecutive month that preliminary survey data has exceeded expectations. However, the report states that consumer optimism is still below historical averages.

According to the report, high prices continue to impact consumers, despite a recent moderation in inflation, and sentiment remains more than 22% below its historical average since 1978. The report also notes that the positive sentiment might not result in increased consumption as consumers may exercise caution with their spending due to concerns about rising unemployment.

The better-than-expected data is contributing to the decline in gold prices, with April gold futures last trading at $1,871.50, down 0.36% for the day. The report also highlights rising inflation expectations, which may be affecting gold prices. Consumers anticipate inflation to increase to 4.2% in one year, up from January’s forecast of 3.9%. Long-term inflation expectations have remained steady at 2.9% for three consecutive months.

According to economists, the persistent high inflation expectations could result in the Federal Reserve maintaining its aggressive monetary policy stance longer than anticipated, supporting the U.S. dollar and weighing on gold.