 | Get all the essential market news and expert opinions in one place with our daily newsletter. Receive a comprehensive recap of the day's top stories directly to your inbox. Sign up here! |
(Kitco News) - The gold market continues to hold its ground above $2,000 an ounce as the U.S. economy loses momentum, with the service sector hovering above contraction territory, according to the latest data from the Institute for Supply Management (ISM).
Wednesday, the ISM said its Services Purchasing Managers Index fell to 51.2 last month, down from February's reading of 55.1%. According to consensus estimates, economists were looking for a smaller drop to 54.3.
Readings above 50% in such diffusion indexes signify economic growth and vice-versa. The farther an indicator is above or below 50%, the greater or smaller the rate of change.
According to some analysts, gold prices continue to attract a healthy safe-haven bid as the latest economic data highlights growing recession fears. June gold futures last traded at $2,039.20 an ounce, relatively flat on the day.
Although the headline data was weaker than expected, Anthony Nieves, chair of the ISM Services Business Survey Committee, said that the economy continues to expand and indicates sustained growth for the service sector.
"There has been a pullback in the rate of growth for the services sector, attributed mainly to (1) a cooling off in the new orders growth rate, (2) an employment environment that varies by industry and (3) continued improvements in capacity and logistics, a positive impact on supplier performance. The majority of respondents report a positive outlook on business conditions," he said in the report.
Looking at the components of the report, the Business Activity Index dropped to 55.4%, down from February's reading of 56.3; at the same time, the New Orders Index fell to 52.2%, down from the previous reading of 62.6%.
The report also noted slowing momentum in the labor market. The Employment Index fell to 51.3%, down from 54% in February.
The slowing economic activity is also helping to cool down inflation, with the Prices Index falling to 59.5%, down from February's 65.6%.
Some analysts note that disappointing economic data supports markets' expectations that the Federal Reserve had ended its aggressive tightening cycle. The inflation data, specifically, will allow the central bank to breathe a sigh of relief as it expects consumer prices will continue to trend lower, analysts have said.
According to the CME FedWatch Tool, markets have been pricing in a 50/50 chance that the Federal Reserve will leave interest rates unchanged in the last few days. However, those expectations have shot up to nearly 70% in initial reaction to the ISM data.
