(Kitco News) - The gold market has pushed to a fresh session high as activity in the U.S. service sector contracted sharply.
On Wednesday, the Institute for Supply Management (ISM) said its Services Purchasing Managers Index dropped to 48.8% in June, compared to May’s reading of 53.8%. The data was significantly weaker than expected, as consensus forecasts looked for a much smaller drop to 52.6.
The gold market has seen a solid bid through the early start of the North American session and the disappointing economic data is adding to the bullish momentum. August gold futures last traded at $2.372.80 an ounce, up 1.68% on the day.
The U.S. service sector is seeing its weakest activity since the economy was shuttered during the COVID-19 pandemic.
“In June, the Services PMI® registered 48.8 percent, 5 percentage points lower than May’s figure of 53.8 percent. The reading in June was a reversal compared to May and the second in contraction territory in the last three months,” said Steve Miller,Chair of the ISM Services 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 disappointing reading comes after the ISM said its Manufacturing PMI also fell deeper into contraction territory. Economists have said that the data raises the risks of an economic slowdown.
“Alongside a decline in the ISM manufacturing index, these surveys suggest that GDP growth will remain weak in the third quarter. They also add to evidence that labour demand is softening, and inflation will remain on a downward trend,” said Olivia Cross, North America Economist at Capital Economics.
Looking at the components of the report, the Business Activity Index dropped to 49.6%, down from May’s reading of 61.2. At the same time, the New Orders Index dropped to 47.3%, down from the previous reading of 54.1%.
Ahead of Friday’s nonfarm payrolls, the ISM report showed falling momentum in the labor market. The Employment Index dropped to 46.1%, down from May’s reading of 47.1%.
Adding to the positive environment for gold, the report noted easing price pressures. The Prices Index dropped to 56.3%, down from May’s reading of 58.1%.
