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Gold price drops below $1,850 as flash PMI data rises more than expected in February

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(Kitco News) - The gold market is struggling to hold its ground in neutral territory as both the U.S. service and manufacturing sectors improved more than expected, highlighting further resilience in economic activity.

Tuesday, the S&P Global Flash U.S. manufacturing PMI data rose to 47.8, up from January's reading of 46.9. According to consensus estimates, economists were looking for a reading around 47.4. The report said that activity in the manufacturing sector reached a four-month high.

Meanwhile, activity in the service sector was also stronger than expected, rising into expansion territory to 50.5., up from January's reading of 46.8. Economists were looking for a print around 47.3. Activity in the service sector is at its highest level in eight months, the report said.

Gold prices dropped below $1,850 an ounce in initial reaction to positive economic data. April gold futures last traded at $1,845.40 an ounce, down 0.26% on the day.

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.

"February is seeing a welcome steadying of business activity after seven months of decline. Despite headwinds from higher interest rates and the cost of living squeeze, the business mood has brightened amid signs that inflation has peaked and recession risks have faded," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

However, while the data came in better than expected, Williamson noted that the manufacturing sector remains in contraction territory. He added that unseasonably warm weather could also have contributed to activity growth in the service sector.

Williamson also noted that inflation remains a significant concern.

"The improved supply situation has taken price pressures out of manufacturing supply chains, but the survey data underscore how the upward driving force on inflation has now shifted to wages amid the tight labor market.," he said. "By potentially stoking concerns over a wageprice spiral, accelerating service sector price growth will add to calls for higher interest rates, which could in turn subdue the nascent expansion.

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