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Gold price rises after Monday’s selloff as ISM Manufacturing Index disappoints in December

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(Kitco News) Gold prices continued to advance after Monday's selloff as the headline manufacturing index from the Institute for Supply Management disappointed in December.

The ISM manufacturing index was at 58.7% last month, falling short of the consensus forecast of 60.0%. The monthly figure also marked a 2.4 percentage-point decline from November’s reading of 61.1%.

“This figure indicates expansion in the overall economy for the 19th month in a row after a contraction in April 2020,” the report said.

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 edged up to daily highs, with February Comex gold futures last trading at $1,809.50, up 0.52% on the day. 

The employment index rose to 54.2% in December, up 0.9 percentage points from the previous month’s reading. The index for new orders decreased to 60.4% from 61.5%, while the production index declined to 59.2% from 61.5%.

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Shortages and supply constraints problems related to the pandemic continue to impact U.S. companies, the report noted. However, there are signs of an improving labor market.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with indications of improvements in labor resources and supplier delivery performance. Shortages of critical lowest-tier materials, high commodity prices and difficulties in transporting products continue to plague reliable consumption. Coronavirus pandemic-related global issues — worker absenteeism, short-term shutdowns due to parts shortages, employee turnover and overseas supply chain problems — continue to impact manufacturing,” said Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee.

Despite these obstacles, business sentiment remains “strongly optimistic,” the report added.

Economists pointed out that the manufacturing survey was conducted too early to meaningfully capture the Omicron variant’s impact on the sector.

“The ISM manufacturing index suggests that the pace of industrial activity growth remained reasonably solid at the end of last year, but the survey probably came too early to capture the potentially significant supply disruptions caused by the explosion of domestic virus cases over the past couple of weeks,” said Capital Economics senior U.S. economist Andrew Hunter. “While we had already suspected that would cause some renewed disruption to supply chains overseas, the surge in domestic virus cases to more than one million per day could deal a more significant blow to manufacturing output, as significant numbers of workers are forced to stay at home.”

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