Gold prices saw a brief recovery before dipping further following the release of a consumer sentiment report from the University of Michigan. The report indicates that consumer sentiment hit a 7-month low in August amid growing concerns surrounding the trade conflict between the US and China.
- Consumer sentiment dropped to 92.1 in August from 98.4 in July, well below the 97.2 expected.
- Current conditions and expectations both saw similar drops in among respondents.
- Sentiment has been impacted by volatility in the financial markets, a global economic slowdown, and escalating trade tensions with China.
The latest report reveals the second-lowest confidence reading of Donald Trump’s presidency, with
consumers voicing concerns about current and future conditions. While the labor market’s strong
performance has continued to offset the weak activity seen in struggling industries like
manufacturing and housing, consumer spending accounts for around 68% of the US economy, and
personal consumption was the largest driver of Q2 expansion. Any weakness seen in sentiment
should be considered as a possible indicator of future activity.
The overall consumer sentiment index released by the University of Michigan dropped to 92.1 from
98.4. Current conditions fell to 107.4, and expectations dropped to 82.3. The results may impact
President Trump’s 2020 election chances, with sentiment by political party confidence for
Republicans dropping to the lowest level of Trump’s term. Confidence for independents dropped,
while improving for Democrats.
US consumer sentiment index fell in Aug to the lowest level since 2019's start. The 92.1 print is still elevated relative to the last several years and only moderately below July's level, but the slide suggests that consumers are sensitive to recent news: https://t.co/3LAMMYh8Gw pic.twitter.com/yuFrWb2bP0
— James Picerno (@jpicerno) August 16, 2019
Cause For Concern
Proposed tariff increases on Chinese goods were a particular point of contention among respondents, cited spontaneously by 33% of those surveyed. The rate cut introduced by the Federal Reserve last month, the first in a decade, has also fostered a cautious mindset among consumers and highlighted the real possibility of an impending recession.
The survey was carried out between July 31 – August 14, a volatile period including the rate cut, escalations in tariffs on Chinese goods, further signs of a global economic slowdown, and major negative movements in the financial markets. The stock markets saw the two sharpest drops of 2019, yields on 30-year Treasury bonds hit record lows, and 10-year bond yields fell below those of 2-year bonds, a recessionary indicator.
Consumer expectations for inflation rose from 2.6% to 2.7% for the coming year, and from 2.5% to 2.6% for the next five years. A measure of buying conditions dropped to the lowest level since 2015, and expectations for personal finances fell after previously hitting the highest level since 2003.
“The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement. “Consumers concluded, following the Fed’s lead, that they may need to adopt a precautionary spending outlook in anticipation of a potential recession.”
Gold prices saw a brief uptick following the report before sliding further toward daily lows. Spot gold last traded at $1,507.20/oz, down 0.82% with a high of $1,527.22/oz and a low of $1,505.30/oz. Risk appetite may be waning due to the recovery seen in the stock markets, and it remains to be seen whether gold will remain above the crucial psychological support line at $1,500.