Gold price edges up from daily lows as momentum in the U.S. service sector slows to lowest reading since May 2020

(Kitco News) Gold pared some of its early-morning losses as momentum in the service sector fell short of expectations in October, according to the latest data from the Institute of Supply Management (ISM).

The Services Purchasing Managers Index (PMI) was at a reading of 54.4% last month, down from September’s 56.7%, marking the lowest reading since May 2020. The 2.3 percentage-point decline was a surprise to the downside as market consensus calls were looking for the index to come in at 55.5%.

Readings above 50 are seen as a sign of economic growth. The farther an indicator is above or below 50, the greater or smaller the rate of change.

Looking at the specifics, the new orders sub-index was at 56.5% after coming in at 60.6% in September. The business activity sub-index was at 55.7% compared to 59.1% registered in the previous month. The employment declined to 49.1% after September’s 53% reading. Economists keep a close eye on the latter number as a gauge of the employment situation in the country.

Meanwhile, inflation pressures started to climb again in October, with the price index rising to 70.7% from the previous month’s 68.7%.

“Growth continues at a slower rate for the services sector, which has expanded for all but two of the last 153 months. The sector had a pullback in growth for the second consecutive month in October due to decreases in business activity, new orders and employment,” the report said.

Gold ticked up from daily lows immediately after the data was released, with December Comex gold futures last trading at $1,622.80, down 1.65% on the day.

This kind of slowdown in the service sector has usually coincided with muted GDP growth readings, said Capital Economics chief North America economist Paul Ashworth.

“All things considered, the further decline in the services index is consistent with our view that the massive surge in interest rates will tip the economy into recession in the first half of next year,” Ashworth said in response to the data release.