(Kitco News) - Gold prices have dropped to session lows following better than expected activity in the U.S. service sector, according to the latest report from the Institute for Supply Management (ISM).
Tuesday, ISM said that its service-sector index showed a reading of 56.9% for August, up from July’s reading of 56.7%. The data beat expectations, as consensus forecasts called for a drop to 55.4%
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.
The gold market is seeing some renewed selling following the latest economic data. December gold futures last traded at $1,713.90 an ounce, down 0.50% on the day.
Some economists note that the ISM report will help to further ease fears that the U.S. is headed towards a recession. They also note that it also gives the Federal Reserve more room to aggressively raise interest rates to cool inflation pressures.
“Overall, while our tracking models suggest that the risks of recession over the next year or so are rising, we still think the economy is more likely to see a period of below-trend growth rather than an outright contraction,” said Andrew Hunter, senior U.S. economist at Capital Economics.
Following the data, markets are pricing in a 72% chance of a 75-basis point hike later this month.
The components of the report showed broad-based strength. The Business Activity Index rose to 60.9%, up from July’s reading of 59.9%. Meanwhile, the New Orders Index rose to 61.8%, up from the previous reading of 59.9%.
The labor market also showed strong momentum, rising 50.2%, up from 49.1%.
Although inflation pressures continue to ease, they remain at elevated levels. The report said that the Prices Index fell to 71.5%, down from 72.3%.
