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Gold prices climb above $1,550 as ISM Manufacturing Index falls below 50.0

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Gold prices climb above $1,550 as ISM Manufacturing Index falls below 50.0

(Kitco News) - Gold prices were up nearly 1.5% on the day after the headline manufacturing index from the Institute for Supply Management came in below 50.0 in August, which pointed to a contraction in the sector.

The ISM manufacturing index came in at 49.1% last month, missing market expectations of 51.1%. August’s monthly decrease marked a 2.1 percentage points drop from July’s reading of 51.2%.

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 greater or smaller the rate of change.

Following the release, gold prices advanced with the December Comex gold futures last trading at $1,551.20, up 1.43% on the day.

The employment index was at 47.4% in August, down from 51.7% in the prior month. The prices index rose to 46% following a July reading of 45.1%.

The index for new orders dropped 3.6 percentage points to 47.2%, while the production index was down 1.3 percentage points at 49.5%.

The weakness in the manufacturing sector is a negative surprise for markets today, which is boosting the gold price.

“[The] report fall[s] into the camp of the monetary policy doves, who want to see the Federal Reserve lower interest rates. Geopolitical concerns already had gold trading with double-digit gains, before the U.S. data was released,” said Kitco’s senior technical analyst Jim Wyckoff.

The ISM manufacturing report reminded investors of “the generally weak tone in key cyclical components of the U.S. economy,” noted CIBC Capital Markets chief economist Avery Shenfeld.

“Manufacturing activity in the US peaked back in December according to the data in the Fed's industrial production series, so the ISM's dip below the 50 mark is actually only catching up to what's already happened … Today's report also put key readings on production and orders into sub-50 territory, along with the employment measure which looked particularly soft at 47.4,” Shenfeld said.

Live 24 hours gold chart [Kitco Inc.]

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