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On January 19th, the University of Michigan released the preliminary data for its widely-regarded Survey of Consumers and Index of Consumer Sentiment for January 2024.

According to the university, consumer confidence in December 2023 and January 2024 seems to have risen by the most that two consecutive months have risen in more than three decades, since the 1990s:

Consumer sentiment soared 13 percent in January to reach its highest level since July 2021, showing that the sharp increase in December was no fluke. Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations. Over the last two months, sentiment has climbed a cumulative 29 percent, the largest two-month increase since 1991 as a recession ended.”

Consumer confidence and the XAU/USD

Unfortunately for gold investors and traders, these figures could mean a continuing downtrend for the precious metal.

Gold has been considered a hedge against both inflation and economic hard times for centuries, and is well-known to be negatively correlated to increases in economic activity and expansion.

The gold price has certainly lost its shine in recent weeks, falling to around $2,027 per ounce today, sparking fears that it might fall to below the $2,000 support level soon. This means that the spot gold price has dropped almost two percent per ounce in January so far.

Consumer confidence and the stock market 

So, with consumer confidence on the rise and gold prices retreating, shouldn’t equities should be unequivocally outperforming?

Interestingly enough, it’s a little more nuanced than that, according to some experts.

In their research for The Journal of Portfolio Management, academics Kenneth Fisher and Meir Statman state that a rise in positive consumer sentiment data affects stock prices in surprising ways – for individual investors, if not institutional ones:

Consumer confidence predicts economic activity, but does it also predict stock returns? Answers to these questions are gained through examination of the consumer confidence measures of the University of Michigan and the Conference Board. Consumer confidence rises with high stock returns, but high consumer confidence is followed by low stock returns. Sentiments of individual investors about the stock market improve with consumer confidence about the economy, as if individuals were unaware that stock prices are a leading indicator of the economy.”

Here is how Charles Schwab director Nathan Peterson saw it, in his podcast on the same day as the Michigan Survey of Consumers came out:

Friday, the University of Michigan’s Survey of Consumers rose to its highest level since July 2021, adding to a string of stronger-than-anticipated economic readings this week that prompted investors to sharply rein in expectations for Fed interest rate cuts… ‘Good’ economic news might be viewed as ‘bad’ because it reduces the likelihood of Fed rate cuts and thus may undercut a bullish stock market thesis.”

The final January data for the Index of Consumer Sentiment is due on February 2nd.

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