Is This the Right Time to Buy Gold?
What’s the Consumer Sentiment Index?
The CSI (Consumer Sentiment Index) is a key indicator that gauges the average US consumer’s confidence level. This is an important indicator for retailers, economists, and investors.
Consumer sentiment weakened in July
The Thomson Reuters and University of Michigan’s final reading for consumer sentiment for July 2015 came in at 93.1 against 96.1 in June. The reading also fell short of market expectations of 94. The Consumer Discretionary Select Sector SPDR ETF (XLY) rose 0.31% at the close of trade on July 31, even though the final reading of the University of Michigan report indicated that consumer sentiment had weakened in July.
US consumers saw their personal financial projections weaken in July.
The current conditions component fell to 107.2 points—a 1.7 fall from June. The index’s expectations component also recorded a 3.7 fall to 84.1. The overall report revealed weaker consumer sentiment in July 2015. However, it’s still at elevated levels compared to history.
According to Richard Curtin, chief economist of the survey, “A disappointing pace of economic growth was the main reason for the small decline in consumer confidence. Nonetheless, the data provide no indication of a break in the prevailing positive trend. Indeed, the Sentiment Index has averaged 94.5 since December 2014, the highest eight-month average since 2004.”
Investment impact on gold
Stronger consumer sentiment usually indicates improving incomes and positive prospects for the economy. This leads to a strengthening US dollar. It also makes dollar-denominated gold less attractive. The current fall in the consumer sentiment isn’t enough to warrant a rise in gold prices.
Other factors directly influencing the US dollar and the Fed rate hike expectations are more likely to impact gold (GLD) and gold stocks like Harmony Mining (HMY), Newmont Mining (NEM), and Kinross Gold (KGC). These will also impact ETFs that invest in these stocks like the Market Vectors Gold Miners ETF (GDX). New Gold and Yamana Gold account for 2.20% and 4.10% of GDX’s total holdings, respectively.
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