Editor's Note: There was an error in the headline. The article has been corrected to reflect the accurate reading in the ISM PMI.
(Kitco News) - The gold market has renewed momentum, holding sold gains above $2,350 an ounce, as the U.S. manufacturing sector loses more momentum, falling deeper into contraction territory. .
On Monday, the Institute for Supply Management (ISM) said its manufacturing index dropped to 48.7% in May, compared to April’s reading of 49.2%. The data was weaker than expected, as consensus forecasts looked for a slight improvement to 49.8.
“U.S. manufacturing activity continued in contraction after growing in March, the first expansion for the sector since September 2022. Demand was soft again, output was stable, and inputs stayed accommodative,” said Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee.
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.
The gold market was already seeing some initial buying momentum as it was bouncing off its overnight lows; however, the disappointing economic data has created a new bid in the marketplace.
August gold futures last traded at $2,359 an ounce, up 0.60% on the day.
Analysts note that gold is rallying as U.S. bond yields start to fall. There are growing market expectations that a slowing economy would force the Federal Reserve to cut interest rates even as inflation remains relatively elevated.
Markets see an 82% chance of a rate cut in November. Analysts have said that the U.S. economy is facing a growing threat of stagflation as activity slows but inflation remains above the Federal Reserve’s 2% target. Commodity analysts have said that this would be a strong environment for gold.
While the headline number disappointed, the components of the report were relatively mixed. The New Orders Index dropped to 45.4% last month, down from the prior reading of 49.1. At the same time the Shipments Index dropped to 50.2%, down from 5.13%.
However, the sector’s labor market saw improved activity, rising to 51.1% from 48.6% in April.
Inflation pressures also eased slightly with the Prices Index falling to 57%, down from the previous reading of 60.9%.
