(Kitco News) - The gold market is testing support near $4,700 an ounce and is holding the line even as the U.S. manufacturing sector sees better-than-expected activity in January, supporting economic growth in the new year.
The Institute for Supply Management (ISM) announced on Monday that its Manufacturing Purchasing Managers Index rose to 52.9% in January, after falling to 47.9% in December. The headline number significantly beat expectations, as economists were looking for a continued contraction in the manufacturing sector with a reading of 48.5.
A reading above 50 indicates growth in the manufacturing sector, while a reading below 50 signifies contraction.
“In January, U.S. manufacturing activity returned to expansion territory, with improvements in all five subindexes that make up the PMI (New Orders, Production, Employment, Supplier Deliveries, and Inventories), though the Employment and Inventories indexes still remain in contraction,” said Susan Spence, MBA, Chair of the ISM Manufacturing Business Survey Committee, in the report.
Despite better-than-expected economic data, the gold market continues to show some technical buying momentum after a sharp selloff overnight that pushed prices to $4,400 an ounce.
The precious metal is well off its overnight lows. Spot gold last traded at $4,719.60 an ounce, down 3.5% on the day. The market is still trying to find its footing after seeing its biggest one-day selloff in recent history on Friday.
Some analysts note that the better-than-expected activity in the manufacturing sector could put some pressure on gold, as it supports resilient economic growth and the Federal Reserve’s current neutral monetary policy stance.
Analysts also note that the U.S. central bank will be in no hurry to cut interest rates as the economy remains healthy.
The components of the report showed broad-based gains. The New Orders Index expanded for the first time since August, with a reading of 57.1%, up from December’s seasonally adjusted figure of 47.4%. New orders have risen to their highest level since February 2022.
At the same time, the Production Index rose to 55.9%, up from December’s seasonally adjusted reading of 50.7%. Production has climbed to its highest level since February 2022.
Although the labor market remains weak, the report noted a solid improvement. The Employment Index rose to 48.1%, up from December’s seasonally adjusted figure of 44.8%.
