Gold and Consumer Sentiment Extremes

The University of Michigan has been conducting its survey of consumer sentiment since 1955.  They made big news last week when they announced that the preliminary reading for the month of May 2025 (reflecting only partial readings for the month) was at 50.8. That is one of the lowest readings in the survey’s history, and it reflects the uncertainty that the consumers are feeling in the first months of President Trump’s term, especially with all of the tariff battles. 

This week's chart compares those sentiment data to the price of gold.  One key adjustment for this chart is that I have inverted the scaling of the UMich Consumer Sentiment Index, to better show the correlation to gold prices.  The key insight from this comparison is that gold tends to do better during periods when confidence is waning.

This Consumer Sentiment Index has not recovered to its pre-Covid levels.  It properly showed low confidence during the 2022 bear market for stock prices, and recovered only a little bit as stock prices rebounded in 2023-24.  Now confidence is suffering once again (remember the scaling is inverted) as consumers worry about what President Trump's tariffs are going to do to the economy.  And this coincides with the big spike upward in gold prices.

The long history shown in this chart shows that this relationship right now is not unusual.  Past gold spikes have also coincided with instances of poor consumer confidence.  But there have also been instances when consumer confidence was low and gold did not play a part.

One such instance was in 1990, when Iraq's invasion of Kuwait caused a temporary doubling of crude oil prices, and the US and other countries were contemplating mounting an invasion.  Gold did not have much of a response then.  After the war concluded, confidence came back and the correlation between the UMich data and the price of gold was restored.

Another exceptional instance was the 2008 Great Financial Crisis (GFC).  Gold was already in an uptrend then, and it generally remained in an uptrend irrespective of the big spike toward lower consumer confidence then.  Both the UMich data and gold prices eventually spiked to a climax together in 2011.

The implication of this relationship is that as we eventually see consumers starting to feel more confident, gold is likely to come back down again.  This chart will not tell us, though, when consumers are going to start that shift.