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Gold prices drop again following better-than-expected ISM service-sector sentiment

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(Kitco News) - Gold prices are pushing lower as economic data continues to come in better than expected. The latest report from the Institute for Supply Management (ISM), shows improving sentiment in the service sector.

Wednesday, the ISM said its non-manufacturing Purchasing Managers Index rose to a reading of 45.4%, up from April’s reading of 41.8. The numbers were better than expected as consensus forecasts were calling for a reading around 44.2.

The positive sentiment in the service sector comes after U.S. states have started to ease lockdown restrictions. Although sentiment is improving, the report noted that there are still significant concerns surging through the economy.

“Respondents remain concerned about the ongoing impact of the coronavirus. Additionally, many of the respondents’ respective companies are hoping and/or planning for a resumption of business,” said Anthony Nieves, chair of the ISM non-manufacturing business survey committee

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.

Gold prices have been under pressure all morning as positive investor sentiment pushing U.S. equity markets higher. August gold prices last traded at $1,704.80 an ounce down 1.68% on the day.

Looking at some of the components of the report, the ISM said that the Business Activity Index increased to 41%, up from April’s low of 26%.

However, the labor market data, which is used as a predictor ahead of Friday’s nonfarm payroll data rose only slightly higher to 31.8%, up from April’s reading of 30%.

Andrew Grantham, senior economist at CIBC, described the PMI data as a stabilization of the sector.

“We should see a more meaningful increase in the headline reading next month as states were only just starting to reopen their economies towards the end of May,” he said. “Remember though, that because surveys such as the ISM measure the breadth of moves rather than the scale of such moves, readings for the coming couple of months may look more positive than the subsequent "real" economic data do.”

While the data is better than expected, Michael Pearce, senior U.S. economist at Capital, economics said that it still shows the U.S. economy will see slower growth moving forward.

“The small rebound in the ISM non-manufacturing index suggests that the services sector is now faring slightly better than the manufacturing sector as lockdowns are lifted. But the overall message is that the wider economic recovery is likely to be slow going.

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