(Kitco News) - The gold market is holding near session highs above $4,200 an ounce as the U.S. service sector loses momentum, driving fears of a potential economic slowdown that could force the Federal Reserve to abandon its tightening bias.
The Institute for Supply Management (ISM) announced on Wednesday that its Services Purchasing Managers Index (PMI) rose to just 54.1 in July, relatively unchanged from its June reading. The headline figure was weaker than consensus forecasts, as economists had expected a reading of around 54.5.
“Thirteen industries reported growth in July, one fewer than in June; four reported contraction, equaling the June total. The July Services PMI reading of 54.1 percent is 0.7 percentage point above the 12-month average of 53.4 percent,” the report said.
The gold market has attracted significant bullish momentum on Wednesday, and the latest ISM data continues to add further support to the rally. Spot gold last traded at $4,225.80 an ounce, up 3.65% on the day. Gold prices are trading at their highest level in six weeks.
Adding further support for gold, the report highlighted continued weakness in the U.S. labor market. The service sector represents nearly three-quarters of the U.S. labor market. The report said its Employment Index dropped into contraction territory, falling to 47.4 from June’s reading of 51.2.
“The Employment Index dropped below its 12-month average of 48.7 percent by 1.3 percentage points and is at its lowest level since March. This index has now been below 50 percent for 12 of the last 18 months,” the report said.
At the same time, the report also noted that inflation pressures continue to rise. The Prices Index rose to 70.3, up from June’s reading of 67.7.
“The Prices Index broke the 70-percent threshold for the fourth time in five months, hitting 70.3 percent. In July, however, the number of commodities reported as down in price increased to six, up from three the previous month,” the report said.
