(Kitco News) - The gold market has bounced off its session lows and is trading in neutral territory as U.S. economic activity continues to lose momentum due to growing weakness in the U.S. service sector.
S&P Global reported on Friday that its flash Purchasing Managers Index (PMI) for the service sector dropped into contraction territory at 48.7 in February, down from January’s reading of 52.9.
The report said that activity in the U.S. service sector dropped to a 25-month low.
Meanwhile, activity in the manufacturing sector remains fairly neutral with the Flash PMI rising slightly to 51.6, up from the previous reading of 51.2.
The report said that activity in the manufacturing sector has risen to an eight-month high.
“U.S. business activity growth came close to stalling in February, according to flash PMI survey data, as a renewed fall in services output offset faster manufacturing growth,” the report said.
The gold market saw some solid buying momentum in its initial reaction to the disappointing economic data. However, investors continue to take profits at these elevated levels. Spot gold last traded at $2,935.30 an ounce, down 0.12% on the day.
“The upbeat mood seen among U.S. businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty, stalling business activity and rising prices. Optimism about the year ahead has slumped from the near-three-year highs seen at the turn of the year to one of the gloomiest since the pandemic,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, in the report. “Companies report widespread concerns about the impact of federal government policies, ranging from spending cuts to tariffs and geopolitical developments. Sales are reportedly being hit by the uncertainty caused by the changing political landscape, and prices are rising amid tariff-related price hikes from suppliers.”
Although inflation pressures have dropped to a three-month low following January’s sharp increase, Williamson noted that higher prices remain a threat to businesses.
“A concern is the sharp, tariff-related, jump in manufacturing input prices, which will likely either put further upward pressure on inflation in the coming months or further squeeze profit margins among U.S. companies,” he said.
