Gold prices (XAU/USD) corrected back on Monday, falling by half a percent to the $2,340s, as new data on US consumer sentiment suggested that interest rates might remain elevated for an extended period, thereby reducing the appeal of gold as a non-yielding asset.
Impact of Michigan Sentiment Survey Data on Gold
The decline in gold prices followed the release of the University of Michigan Consumer Sentiment Survey on Friday, which reported an unexpected drop in consumer sentiment alongside increased inflation expectations.
The preliminary University of Michigan Consumer Sentiment Index for May fell sharply to 67.4 from 77.2, a significant deviation from economists’ expectations of a milder decline to 76.0. Concurrently, the survey’s long-run inflation expectations component edged up to 3.1% from 3.0%.
Implications for Federal Reserve Policy
The rise in inflation expectations has implications for Federal Reserve policy, suggesting that the central bank might delay anticipated interest rate cuts. For gold, this scenario is unfavorable because higher interest rates increase the opportunity cost of holding gold relative to interest-yielding assets such as bonds or cash.
The combination of falling consumer sentiment and rising inflation expectations has contributed to the pressure on gold prices, as investors recalibrate their expectations regarding future interest rate movements and their potential impact on the attractiveness of non-yielding assets like gold.
As the market continues to digest these economic indicators, the outlook for gold will remain closely tied to evolving expectations around US monetary policy and interest rate trajectories.
