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Gold Prices Near Session Highs As Market Digests Drop In ISM Manufacturing Sentiment

Kitco News

Editor's Note: The article was updated to reflect higher gold prices in delayed reaction to the data.

(Kitco News) -In delayed reaction, the gold market is pushing to session highs, after sentiment in the manufacturing sector fell in March, according to the last data from the Institute for Supply Management (ISM).

Monday, the ISM said its manufacturing index showed a reading of reading 59.3% for March, down from February's reading of 60.8%. Consensus forecasts were calling for a reading around 60.1%.

While the report showed a drop in sentiment, overall the data shows positive growth expectations for the manufacturing sector. Readings above 50% in such diffusion indexes are seen as a sign of economic growth, and vice-versa. The farther an indicator is above or below 50%, the higher or smaller the rate of change.

Gold was up ahead of the report and has added to its positive gains following the report. June gold futures last traded at $1,340.90 an ounce, up 1% on the day. According to analysts, traders are more concerned with the growing threat of a trade war between China and the U.S. thank economic data.

The threat of a trade war and new tariffs on steel and aluminum were concerns among some participants in the ISM survey. "New tariffs are causing concern across the supply chain. The full impact will take a few weeks to reveal itself," said one respondent.

"Significant price increases in the steel commodity due to 232 [the tariffs]. The price increases will begin to impact our company's performance," said another respondent.

Along with the weaker-than-expected headline data, the report showed broad-based weakness in the components of the index. The report said that the New Orders Index registered 61.9%, down from the February reading of 64.2%. At the same time, the Production Index registered dropped to 61%, down from February's reading of 62%.

Looking at the labor market, the Employment Index showed a reading of 57.3%, down from the February reading of 59.7 percent.

Positive for gold, the report noted a substantial rise in inflation pressures. The Prices Index showed a reading of 78.1% in March, up from the February reading of 74.2%.

"The Prices Index is at its highest level since April 2011," the report said.
Gold is traditionally seen as a hedge against inflation.

Avery Shenfeld, said shrugged of the weak data saying that the sector has been “red hot.” He added that the data “is still consistent with solid growth.”

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