Gold prices take a step back after positive surprise in the U.S. service sector
Editor's Note: The article was updated to reflect changes in prices.
(Kitco News) Gold remained resilient but took a step back from the $1,800 an ounce level after momentum in the U.S. service sector accelerated more than expected in June, according to the latest data from the Institute of Supply Management (ISM).
The Non-Manufacturing Purchasing Managers Index rose to a reading of 57.1% in June, up from May’s 45.4%. The 11.7 percentage-point increase surprised the markets, with consensus expectations calling for the index to come in at 50.1%.
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 reading represents growth in the non-manufacturing sector after a two-month period of contraction preceded by 122 straight months of expansion. This is the largest single-month percentage-point increase in the NMI® since its debut in 1997,” the report said.
The details of the ISM Non-Manufacturing report revealed that the new orders sub-index rose to 61.6% from May’s 41.9%.
Looking at other components, business activity sub-index increased to 66% from 41% registered in May. The employment index rose to 43.1% from May’s reading of 31.8%. Economists keep a close eye on the latter number as a gauge into the employment situation in the country.
Inflation pressures rose, with the price index coming in at 62.4% in June after May’s reading of 55.6%.
In an immediate reaction to the latest ISM Non-Manufacturing index, gold prices edged with the August Comex gold futures were last trading at $1,789.60, down 0.02% on the day.
Prior to the release, gold was flirting with the $1,800 an ounce level despite risk-on sentiment in the marketplace.
June's ISM non-manufacturing recovery, however, should be treated with caution, said CIBC Capital Markets senior economist Andrew Grantham.
“While the ISM states that it receives responses "throughout most of any given month, with the majority of respondents generally waiting until late in the month", it is still likely that some of the responses came in before the delaying/reversing of reopening plans in some parts of the country as Covid-19 case counts spiked during the second half of the month. Moreover, surveys such as these only measure the breadth of moves (ie the proportion of firms seeing activity rise/fall in a given month) and tell us nothing about the scale of the recovery relative to how deep the downturn was,” Grantham wrote on Monday.