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(Kitco News) - The gold market is holding near session highs, supported by growing recession fears as activity in the U.S. manufacturing sector slowed more than expected in March, according to the latest Institute for Supply Management (ISM).
Monday, the ISM said that its manufacturing Purchasing Managers Index dropped deep into contraction territory in March, falling to 46.3%, down slightly from February's reading of 47.7%. The data missed expectations as economists were looking for a roughly unchanged reading of around 47.5%.
The report shows that activity in the manufacturing sector is at its lowest point since June 2020, when the global economy ground to a halt because of the Covid-19 pandemic.
"…the March composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.
The gold continues to push closer to critical resistance at $2,000 an ounce in initial reaction to the disappointing manufacturing data. June gold futures last traded at $1,983.10 an ounce, up 0.72% on the day.
Looking at the components of the report, New Orders dropped to a reading of 44.3%, down from February's reading of 47%. At the same time, the Production Index increased slightly to 47.8%, up from the previous reading of 47.3%.
The report also noted that the labor market lost momentum last month, with the Employment Index falling to 46.9%, down from February's reading of 49.1%.
The report did note that the weaker activity is helping to cool inflation. The Prices Index dropped to 49.1, down from 51.3% in February.
Andrew Hunter, deputy chief U.S. economist at Capital Economics, said in a note that the data shows the U.S. continues to move closer to an recession.
“While it’s probably too soon to expect the banking sector turmoil to have had much impact on manufacturers, it has only strengthened our belief that domestic demand growth is set to weaken sharply,” he said. “Overall, we continue to expect the wider economy to follow the manufacturing sector into recession soon.”
