(Kitco News) - The gold market could struggle to attract fresh safe-haven flows as preliminary economic data points to a modest recovery in activity across both the service and manufacturing sectors.
S&P Global reported on Tuesday that its flash Purchasing Managers Index (PMI) for the service sector rose in May to 52.3, up from April’s reading of 50.8. The data beat expectations, as economists had forecast a reading of around 51.
Activity in the manufacturing sector also improved at a similar pace, with the PMI rising to 52.3, up from the previous month’s reading of 50.2. The improvement in manufacturing was a bigger surprise compared to services, as economists had expected a contraction.
While the data will ease some fears of a major economic slowdown, the report noted that sentiment remains subdued.
“US business activity growth and expectations for future output improved from lows seen in April, according to flash PMI survey data for May. However, they both remained historically subdued amid ongoing concerns over the detrimental impact of tariffs on demand, supply chains, and prices,” the report said.
The gold market is seeing renewed selling pressure in its initial reaction to the better-than-expected data. The precious metal is struggling to hold key near-term resistance. Spot gold last traded at $3,292.70 an ounce, down 0.63% on the day.
While activity has improved, the report noted that President Donald Trump’s import tariffs have cast a long shadow over sentiment and are impacting prices.
“Prices charged for goods and services surged to an extent not seen since August 2022, overwhelmingly linked to tariffs,” the report said.
At the same time, although optimism has improved, the report noted that uncertainty continues to flow through the economy.
“Overall optimism was still slightly below the average seen in 2024, attributable to reports of supply worries, rising prices, ongoing uncertainty, and concerns over detrimental impacts from government policies, including tariffs and spending cuts,” the report said.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said that some of the activity could be front-loaded as the current 90-day deadline approaches.
“In particular, concerns over tariff-related supply shortages and price rises led to the largest accumulation of input inventories recorded since survey data were first available 18 years ago,” he said in the report. “Supply chain delays are now more prevalent than at any time since the pandemic led to widespread shortages in 2022, and prices charged for both goods and services have spiked higher as firms and their suppliers seek to pass on tariff levies to customers.”
