(Kitco News) - The gold market is holding on to gains and looking to end the week within striking distance of $1,800 an ounce as recession fears continue to build, with preliminary data pointing to a further contraction in both the manufacturing and service sectors.
Friday, the S&P Global Flash U.S. Composite PMI reported roughly weaker-than-expected activity for the manufacturing sector and the service industries. The report said that the manufacturing PMI data came in at 46.2, down from November's reading of 47.7. According to consensus estimates, economists were looking for an unchanged reading.
Meanwhile, activity in the service sector also dropped, falling to a reading of 44.4, down from November's reading of 46.2. Economists were expecting to see a reading of around 46.5.
The report noted that activity has dropped to its lowest level since May 2020 due to weak demand and rising interest rates. It is also one of the sharpest declines going back to October 2009.
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 survey data suggest that Fed rate hikes are having the desired effect on inflation, but that the economic cost is building and recession risks are consequently mounting," said Chris Williamson, chief business economist at S&P Global Market Intelligence, in the report.
The gold market was seeing solid buying momentum ahead of the report, testing resistance just below $1,800 an ounce. February gold futures last traded at $1,797.70 an ounce, up 0.55% on the day.
Williamson said that the data points to a contraction in U.S. fourth-quarter GDP of around 1.5%. He added that the information also highlights growing weakness in the U.S. labor market.
"Jobs growth has meanwhile slowed to a crawl as firms across both manufacturing and services take a much more cautious approach to hiring amid the slump in customer demand," he said.
However, the slowing economy is also cooling inflation. "December saw the largest monthly cooling of firms' input cost inflation seen in the 13-year history of the survey barring only the lockdown-related slump in April 2020," Williamson said.
