As consumer confidence wavers, gold bugs come back from the sidelines

Some attributed the blip to the polar vortex that swept through most of North America earlier in the month. The warmer winds of February are expected to pick up the disappointing slack in U.S. consumer confidence levels next month.

But I’m not so sure. Friday’s consumer confidence numbers missed expectations by the widest margin in eight years. It also marks the seventh miss in the last eight months. Throughout 2013, consumer confidence numbers only beat projected forecasts three times, which (surprise!) means Wall Street doesn’t really have its finger on the pulse of Main Street America.

What isn’t surprising is that upper-income households have increased consumer confidence, having benefited the most from strong gains in income levels, the stock market, and housing values. On the other hand, low- and middle-income households that are not heavily invested in the stock market are being weighed down by stagnant wages and embarrassingly high unemployment.

And, since there are more middle- and low-income earners than high-income earners in the U.S., and 70% of our gross domestic product (GDP) comes from consumer spending, it’s fair to say that both consumer confidence levels and the economic outlook for the majority of Americans is bleak.

It’s not as if the disappointing consumer confidence levels have come out of a vacuum. A raft of weak economic data came out late last week to suggest waning consumer confidence levels are in keeping with the general malaise about the U.S. population.

U.S. housing starts in December came in slightly above expectations but still slipped 9.8% to 999,000 on an annualized basis. The 10% slide was attributed to the winter weather. Single-unit (family) housing starts dropped to 610,000 in December; the lowest level since July 2013 and 4.8% below the revised November figure of 641,000. (Source: “New Residential Construction in December 2013,” U.S. Census Bureau, January 17, 2014.)

U.S. inflation jumped to 1.5% in December—the highest level since June and up from 1.2% on an annualized basis in November 2013. The cost of living in the U.S. advanced as the cost of gasoline and apartment rents increased. While 1.5% may not seem like much, it’s important to remember that interest rates have been kept artificially low by the Federal Reserve since 2008, and any rise in inflation will have an adverse effect on a large segment of the U.S. population. Eventually, the Federal Reserve will have to take the shackles off the inflation rate and let it run free. (Source: “Gold prices turn higher after U.S. inflation data,” Investing.com, January 16, 2014.)

Weak consumer confidence levels are also being buoyed by high unemployment. While the jobless rate fell to 6.7% in December, most of the so-called good news can be attributed to the large number of long-term unemployed workers abandoning their search for new jobs—and not being accounted for in the country’s jobless figures. On top of that, the vast majority of the jobs created in the shopping-heavy month of December came from the retail industry.

While the overall unemployment rate might be at a slight-of-hand 6.7%, it’s a different story at America’s three biggest cities: 8.9% in New York City, 10.9% in Chicago, and 11.3% in Los Angeles.

High inflation, high unemployment, and low economic growth: it’s not a real surprise to see consumer confidence levels on the decline —or gold bugs getting quietly bullish. SPDR Gold Shares (NYSEArca/GLD), the largest physically backed gold exchange-traded fund (ETF), has seen its unit price climb more than five percent since the beginning of the year. Meanwhile, the Market Vectors Gold Miners ETF (NYSEArca/GDX) is up more than 10% in January. Looks like it may be time to consider gold again.