(Kitco News) - The gold market is experiencing selling pressure following preliminary data showing that activity in both the manufacturing and service sectors increased more than expected in August.
S&P Global reported Thursday that its flash Purchasing Managers Index (PMI) for the manufacturing sector rose to 53.3 in August, up from July’s reading of 49.8. Activity in the sector was stronger than expected, as economists had anticipated a relatively unchanged reading.
The report noted that the index reached its highest level in 39 months.
“Having come close to stalling in July, new order inflows in the goods-producing sector also picked up in August, with growth hitting the highest since February 2024, principally on the back of rising domestic demand but also helped by the largest rise in goods exports for 15 months,” the report said.
Meanwhile, the U.S. service sector managed to hold its ground. According to the report, the PMI for the service sector rose to 55.4, roughly unchanged from July’s reading of 55.7. The data beat expectations, as consensus forecasts had called for a drop to 54.2.
“A sustained robust expansion was reported in the services economy, albeit with business activity growth dipping slightly from July’s year-to-date high,” the report said.
The composite index rose to 55.4, up from July’s reading of 55.1.
Despite the stronger-than-expected economic data, the gold market continues to hold critical support above $3,300 an ounce, even as it faces some selling pressure in its initial reaction. Spot gold last traded at $3,336.80 an ounce, down 0.26% on the day.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said the recovery in economic activity bodes well for third-quarter growth.
“The data are consistent with the economy expanding at a 2.5% annualized rate, up from the average 1.3% expansion seen over the first two quarters of the year,” he said in the report. “Companies across both manufacturing and services are reporting stronger demand conditions, but are struggling to meet sales growth, causing backlogs of work to rise at a pace not seen since the pandemic-related capacity constraints recorded in early 2022.”
However, increased activity is coming at a cost as prices rise. The report said that average prices charged for goods and services rose at the sharpest rate since August 2022 as firms passed higher costs on to customers.
“The resulting rise in selling prices for goods and services suggests that consumer price inflation will rise further above the Fed’s 2% target in the coming months. Indeed, combined with the upturn in business activity and hiring, the rise in prices signaled by the survey puts the PMI data more into rate hiking, rather than cutting, territory according to the historical relationship between these economic indicators and FOMC policy changes,” said Williamson.
