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(Kitco News) - Gold prices are holding a relatively neutral line above support at $1,950 an ounce as preliminary PMI data shows a muddled picture of U.S. economic activity.
Monday, the S&P Global Flash U.S. manufacturing PMI data remained in contraction territory but rose more than expected to 49.3, following June's reading of 46. According to consensus estimates, economists were looking for a relatively unchanged 46.1.
The report said that activity in the service sector has risen to a three-month high.
Meanwhile, the service sector PMI lost momentum, falling to 52.4, down from last month's reading of 54.4. Economists were looking for a reading of around 54.4.
The report said that activity in the service sector has dropped to a five-month low.
The mixed economic data is not providing any bullish momentum for the gold market; however, prices are managing to hold support above $1,950 an ounce. August gold futures last traded at $1,961.90 an ounce, down 0.26% on the day.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said that July is seeing a disappointing start to the quarter, and the data could continue to highlight recessionary threats.
"The overall rate of output growth, measured across manufacturing and services, is consistent with GDP expanding at an annualized quarterly rate of approximately 1.5% at the start of the third quarter. That's down from a 2% pace signaled by the survey in the second quarter," he said. "However, growth is being entirely driven by the service sector, and in particular rising spending from international clients, which is helping offset a becalmed manufacturing sector and increasingly subdued demand from U.S. households and businesses."
Along with disappointing growth, the report noted that inflation remains a threat as companies pass on higher costs to consumers.
"Service providers recorded an elevated pace of increase in operating expenses, with wage costs the main driver behind inflation amid greater challenges to retain staff," the report said.
Williamson said that although inflation has dropped sharply from last year's 40-year highs, it could remain stubbornly above 3% in the near term.
Some analysts have said that although the economy continues to struggle, gold prices could be reacting to the report's inflation data. Analysts have noted that stubborn inflation could force the Federal Reserve to maintain its aggressive tightening cycle longer than expected.
Currently, markets expect this week's rate hike to be the last in this tightening cycle.
