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Gold prices recover from daily lows as ISM Manufacturing Index falls below 50.0 but beats expectations

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Editor's Note: The article was updated to reflect changes in prices.

(Kitco News) Gold prices first edged down but then managed to recover from daily lows after the headline manufacturing index from the Institute for Supply Management fell below 50.0 but was still above expectations in March.

The ISM manufacturing index came in at 49.1% last month, beating market expectations of 45.0%.

March’s monthly decrease marked a 1.0 percentage point drop from February’s reading of 50.1%.

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 saw some additional declines but then managed to recover from daily lows with the June Comex gold futures last trading at $1,601.30, up 0.31% on the day.

The employment index was at 43.8% in March, down from 46.9% in the prior month. The prices index tumbled to 37.4% following a February reading of 45.9%. The index for new orders dropped 7.6 percentage points to 42.2%, while the production index was down 2.6 percentage points at 47.7%.

The weakness in the manufacturing sector is projected to worsen as the effects of the coronavirus outbreak are felt throughout the U.S.  “Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility. The PMI returned to contraction territory, and with a negative trajectory,” the report said Wednesday.

The COVID-19 outbreak and the oil price shocks have impacted all manufacturing sectors, according to the March report. 

“The coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors … Transportation Equipment and Petroleum & Coal Products are the weakest sectors. Sentiment regarding near-term growth this month is strongly negative, by a 2-to-1 ratio,” said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

Economists expect a much weaker print next month, stating that the effects of the COVID-19 outbreak were not fully reflected in the March release.

“The main reason for the only modest decline in the composite index was because the measure of suppliers' delivery times moved up, although that lengthening of lead-times clearly isn't a good thing in this instance. Because of these details and the further weakening of the economy seen since the majority of replies likely came in, we would expect the headline print to weaken markedly next month towards the 42.8 mark that the ISM says has historically been consistent with U.S. recessions,” said Andrew Grantham, senior economist with CIBC Capital Markets. 

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