(Kitco News) - The gold prices are holding in neutral territory below $1,850 an ounce following stronger than expected activity in the U.S. manufacturing sector, according to the latest report from Institute for Supply Management (ISM).
Wednesday, the ISM said its Manufacturing Purchasing Managers Index, increased to 56.1% in May, up from April’s reading of 55.4%. The data was better than expected as economists were looking for a drop to 54.4%.
The gold market is not seeing much reaction to the better-than-expected economic data; however, prices remain below a critical psychological level. August gold futures last traded at $1,846.40 an ounce, down 0.10% on the day.
Although the U.S. manufacturing sector remains strong, the report also notes inflation remains persistent. The report said that the Prices Index rose to 82.2%, down from the previous reading of 84.6%. Economists were looking for a steeper decline to 80.6%.
Market analysts have said that rising inflation will keep real interest rates low, supporting long-term gold prices.
“Manufacturing performed well for the 24th straight month, with demand registering faster month-over-month growth and consumption softening due to labor force constraints. Overseas partners’ disruptions are beginning to impact U.S. manufacturing, creating a near-term headwind for factory output growth,” said Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee.
Looking at the components of the report, the New Orders Index rose to 55.1%, up from April’s reading of 53.5; at the same time the Production Index increased to 54.2%, up from 53.6%.
However, the report noted weak momentum in the labor market. The Employment Index dropped to 49.6%, down from the previous reading at 50.9%.
Although the manufacturing sector appears to holding on to its momentum, some economists don’t expect this trend to last. Andrew Hunter, Senior U.S. Economist at Capital Economics said that he expects growth to slow through 2022.
“We doubt the rise in the ISM index in May will mark the start of a sustained recovery, however, and expect manufacturing output growth to weaken from here,” he said. “The likely to hit to export demand from the stronger dollar, and the slowdown in domestic consumer goods demand, also suggest the outlook for the manufacturing sector is darkening.”
