(Kitco News) - On the heels of disappointing labor market data, gold prices are testing a critical near-term resistance point, as bullish momentum is further supported by weak manufacturing activity.
The Institute for Supply Management (ISM) announced on Tuesday that its Manufacturing Purchasing Managers Index (PMI) dropped to 48 in July, down from a reading of 49 in June. The headline number was worse than expected, as consensus forecasts had called for an improvement to 49.5.
Susan Spence, MBA, Chair of the ISM Manufacturing Business Survey Committee, said the disappointing reading points to a weakening in overall economic activity.
“Looking at the manufacturing economy, 79 percent of the sector’s gross domestic product (GDP) contracted in July, up from 46 percent in June. Notably, 31 percent of GDP is strongly contracting (registering a composite PMI of 45 percent or lower), up from 25 percent in June. The share of sector GDP with a PMI at or below 45 percent is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, none expanded in July, compared to four in June,” said Spence.
The gold market is not seeing much immediate reaction to the manufacturing data, as investors continue to digest the latest U.S. labor market figures. However, some analysts note that gold remains an attractive safe-haven asset as the manufacturing sector continues to lose momentum.
Spot gold last traded at $3,347.70 an ounce, up nearly 2% on the day.
“This softer reading amplifies concerns about economic slowdown, further weighing on the US dollar as it signals persistent weakness in a key economic driver. For gold, the subpar PMI enhances its attractiveness, likely driving demand as investors gravitate toward safe-haven assets amid growing uncertainty,’ said Aaron Hill, Senior Market analyst at FP Markets.
Looking at the components of the report, the New Orders Index increased to 47.1, up from June’s reading at 46.4; at the same time the Production Index rose to 51.4, compared to 50.3 reported in the prior month.
The report also highlighted slowing momentum in the labor market; the Employment Index dropped to 43.4, down from June’s reading of 45.
However, weakening activity is helping to push costs down. The report said that the Prices Index dropped to 64.8, down from June’s reading of 69.7.
