The gold market is trading near record highs ahead of the weekend after the latest data showed that consumer confidence in the U.S. was deteriorating beyond all expectations, while inflation expectations and recession fears rose dramatically once again.

The University of Michigan announced Friday that the preliminary reading of its consumer sentiment survey was 50.8 in April, well below the final March reading of 57. The data was much worse than expectations, as the consensus forecast of economists had expected a reading of 54.5.

"Consumer confidence fell for the fourth consecutive month, plunging 11% from March," said Joanne Hsu, director of Consumer Surveys. "This decline was, like last month's, widespread and unanimous across age, income, education, geographic region and political affiliation. Confidence has lost more than 30% since December 2024, amid growing concern over the evolving trade war, which has fluctuated throughout the year."

Gold prices are approaching new all-time highs this morning following the 10 am EST data release, with spot gold last trading at $3,232.91 per ounce, representing a gain of 1.81% on the day.

The index constituents showed very acute concern about the potential for higher inflation and recession in the coming years. 

"Consumers report multiple warning signs that raise the risk of recession: expectations about business conditions, personal finances, incomes, inflation and labor markets continued to deteriorate this month," Hsu said in the report. "The proportion of consumers who expect unemployment to rise next year increased for the fifth consecutive month and is now more than double the November 2024 figure and the highest since 2009. This lack of confidence in the labor market contrasts sharply with that of recent years, when vigorous spending was supported primarily by strong labor markets and incomes."

Annual inflation expectations rose from 5.0 percent last month to 6.7 percent this month, the highest since 1981, marking four consecutive months of unusually high increases of 0.5 percentage points or more, he added. This month's increase was seen in all three political affiliations. Long-term inflation expectations rose from 4.1% in March to 4.4% in April, reflecting a particularly steep increase among independents.

Harry Chambers, associate economist at Capital Economics, said stagflation is now clearly on consumers' minds.

"The further drop in the University of Michigan's Consumer Confidence Index in April, along with rising one- and five-year inflation expectations, suggests that tariff-related fears, which had deteriorated confidence in recent months, are here to stay," he wrote in a note to Kitco News. "The press release also noted that 'the proportion of consumers expecting unemployment to rise next year is the highest since 2009,' suggesting that confidence in the labor market is also declining. Another noteworthy detail from the release is the sharp drop in confidence among Republicans."

"Despite the drop in energy prices, one-year inflation expectations rose from 5.0 percent to 6.7 percent, likely directly reflecting the imposition of tariffs last week," Chambers noted. "More worryingly, however, five-year inflation expectations rose again, to 4.4%, and now stand at their highest level since 1991. Households seem to have come to the same conclusion as the markets: tariffs will cause lasting damage to the U.S. economy."

Ernest Hoffman, Kitco

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