(Kitco News) - The gold market is retracing some of its losses, pushing into neutral territory above $1,650 an ounce as activity in both the service and manufacturing sectors appear to be contracting.
Monday, the S&P Global Flash U.S. Composite PMI said its flash manufacturing PMI data fell to 49.9, down from September's reading of 52. The data was worse than expected; according to consensus estimates, economists were looking for a reading around 51.0.
Meanwhile, activity in the service sector was weaker than expected, falling deeper into contraction territory at 46.6, down from the September reading of 49.3. Economists were looking for a print of around 49.6.
Although gold prices managed to attract some safe-haven buying momentum, there appears to be some sticky resistance around $1,650, keeping prices chained near that level. December gold futures last traded at $1,655.30 an ounce, roughly neutral on the day.
According to economists, the latest economic data continues to raise fears that the U.S. economy is headed to a recession as rising interest rates slow the economy.
The report noted that the drop within the service sector was the second fastest fall in nearly two-and-a-half years. The report said that demand has dropped due to weak client demand and the impact of rising inflation and higher interest rates.
Although inflation remains persistently high, Chris Williamson, chief business economist at S&P Global Market Intelligence, said the data points to further risk of a recession in the fourth quarter.
"The U.S. economic downturn gathered significant momentum in October, while confidence in the outlook also deteriorated sharply. The decline was led by a downward lurch in services activity, fuelled by the rising cost of living and tightening financial conditions," he said in the report. "While output in manufacturing remains more resilient for now, October saw a steep drop in demand for goods, meaning current output is only being maintained by firms eating into backlogs of previously placed orders. Clearly this is unsustainable absent of a revival in demand, and it's no surprise to see firms cutting back sharply on their input buying to prepare for lower output in coming months."
Although the U.S. economy continues to see slower growth, Williamson added that it does appear to be having an impact on inflation pressures, even as they remain persistently high.
"There are clearly signs that weakening demand is helping to moderate the overall rate of inflation, which should continue to fall in the coming months, especially if interest rates continue to rise," he said.
