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Gold prices down more than 2% on the day as U.S. service sector beats expectations

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Gold prices hit new daily lows as U.S. service sector beats expectations in August

(Kitco News) - Gold prices saw more losses after momentum in the service sector recovered from nearly three-year lows in August, according to the latest data from the Institute of Supply Management (ISM).

The Non-Manufacturing Purchasing Managers Index rose to a reading of 56.4% in August, up from July’s 53.7%. The 2.7 percentage-point advance surprised the markets, with consensus expectations calling for the index to come in at 54%.

Readings above 50 are seen as a sign of economic growth – the farther an indicator is above or below 50, the greater or smaller the rate of change.

“This represents continued growth in the non-manufacturing sector, at a faster rate,” the report said. “The non-manufacturing sector’s rate of growth rebounded after two consecutive months of cooling off. The respondents remain concerned about tariffs and geopolitical uncertainty; however, they are mostly positive about business conditions.”

The details of the ISM Non-Manufacturing report revealed that the new orders sub-index rose to 60.3% from July’s 54.1%.

Looking at other components, business activity sub-index increased to 61.5% from 53.1% registered in July. The employment index, on the other hand, declined to 53.1% from July’s reading of 56.2%. Economists keep a close eye on the latter number as a gauge into the employment situation in the country.

Inflation pressures rose for the 27th consecutive month, with the price index coming in at 58.2% in August.

In an immediate reaction to the latest ISM Non-Manufacturing index, gold prices dropped to new daily lows with December Comex gold futures last trading at $1,522.60, down 2.42% on the day.

Prior to the release, gold prices were already down due to renewed risk-on sentiment triggered by positive U.S.-China trade headlines. And the U.S. service data only further contributed to that mood, analysts said.

“Today's services ISM also was in line with the brighter picture from hard data on that side of the economy. The big rebound to 56.4, albeit after an outsized drop in July, suggests that the woes on the goods side of the economy aren't yet spilling over in to a broader malaise,” CIBC Capital Markets chief economist Avery Shenfeld wrote on Thursday. “Overall the news today … could add to the mood enhancement coming from news on yet another round of China-US talks ahead.”

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