(Kitco News) - The gold market continues to struggle, testing support above $2,500 an ounce and is unable to attract any buying momentum as the U.S. manufacturing sector remains in contraction territory.
The Institute for Supply Management (ISM) announced on Tuesday that its U.S. manufacturing index rose to 74.2%, compared to July’s reading of 46.8%. The data rose roughly in line with expectations, even as activity remains in contraction territory.
“While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative,” said Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee. “Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty. Production execution was down compared to July, putting additional pressure on profitability.”
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 is not seeing much reaction to the data as it continues to see solid technical selling. December gold futures last traded at $2,515.40 an ounce, down 0.64% on the day.
The components of the report showed more weakness compared to the headline increase. The New Orders Index dropped to 44.6%, down from July’s reading of 47.4%. At the same time, the Production Index fell to 44.8%, down compared to July’s reading of 45.9%.
The labor market saw a modest improvement with the Employment Index rising to 46.0%, up from the previous reading of 43.4%.
Inflation pressures are also rising with the Price Index pushing to 54.0%, up from the previous reading of 52.9%.
Thomas Ryan, North America Economist at Capital Economics said that the latest ISM data does not bode well for economic activity in the third quarter.
“The ISM manufacturing index was essentially unchanged in July, leaving it consistent with manufacturing output and GDP growth losing momentum in the third quarter, and a sharp drop in the new orders index reduces the likelihood of a turnaround in September,” he said.
