What to watch for before investing in gold (Part 5 of 12)
(Continued from Part 4)
Who tracks the CSI?
The consumer sentiment index, or CSI, is a key indicator that gauges the average US consumer’s confidence level. This is an important indicator for retailers, economists, and investors.
Tracking the US CSI
Thomson Reuters and the University of Michigan release the US CSI every month. The Survey Research Center conducts the underlying survey, which consists of at least 500 telephone interviews involving a cross section of consumers in the continental United States.
Each monthly survey contains about 60% new responses, and the remaining 40% comes from repeat respondents. The repeat surveys help reveal the change in consumer sentiment over time. The index rises when consumers gain confidence in the economy.
Eleven-year high
The Thomson Reuters–University of Michigan’s final January 2015 reading on overall consumer sentiment came in at 98.1, the highest final reading since January 2004. This was up from 93.6 the month before.
Declining gasoline prices and an improving job market are probably the factors leading to this surge in consumer confidence. This means that US consumers expect better economic growth and rising incomes in the coming months.
“Consumers judged prospects for the national economy as the best in a decade, with half of all consumers expecting the economic expansion will continue for another five years,” said Richard Curtin, the survey’s director.
How consumer sentiment impacts gold
Improving consumer sentiment usually indicates an improving job market, increasing incomes, and overall positive growth prospects for the economy. All of this leads to a stronger US dollar, and makes other investments, including equities and high yield bonds, more attractive.
A soaring consumer sentiment index is negative for gold (GLD) and gold stocks such as Anglogold Ashanti (AU), Yamana Gold (AUY), Newmont Mining (NEM), and Agnico Eagle Mines (AEM). It’s also negative for ETFs investing in these stocks such as the Market Vectors Gold Miners ETF (GDX). AU, AUY, and NEM respectively make up 4.4%, 3.6%, and 7.6% of GDX’s total holdings.
Continue to Part 6
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