(Kitco News) - Gold is trading not far from session lows after the latest data showed the U.S. manufacturing sector as a whole performing below expectations last month, while prices shot dramatically higher in September.
The Institute for Supply Management (ISM) announced on Thursday that its Manufacturing Purchasing Managers Index fell to 54.5 in September, after posting a reading of 54.6 in August. The headline number was lower than expected, as consensus forecasts looked for a reading of 55.
“In September, U.S. manufacturing activity remained in expansion territory,” said Susan Spence, Chair of the ISM Manufacturing Business Survey Committee. “Of the five subindexes that make up the PMI, only New Orders and Employment grew faster than the previous month. In September, 40 percent of the comments were positive and 60 percent negative, with a 1-to-1.6 ratio of positive to negative sentiment. Among negative comments, pricing volatility was mentioned in 46 percent, tariffs 34 percent, the Iran war 30 percent and increasing lead times 21 percent; most comments mentioned multiple factors.”
Spot gold fell to a session low of $4,139 overnight, and was continuing to trade not far from its lows following the 10 a.m. ET release. Spot gold last traded at $4,158.26 per ounce for a slight gain of 0.03% on the day.
The components of the report showed a mixed picture across key areas, while Prices shot higher compared to the prior month.
“The New Orders Index expanded for the ninth consecutive month after four straight readings in contraction, registering 55.3 percent, up 1.6 percentage points compared to August’s figure of 53.7 percent,” Spence noted. “The September reading of the Production Index (56.7 percent) is 1.6 percentage points lower than the 58.3 percent recorded in August. The Prices Index remained in expansion (or ‘increasing’ territory), registering 77.9 percent, a notable increase of 6.8 percentage points compared to August’s reading of 71.1 percent. The Backlog of Orders Index registered 56.4 percent, up 4.6 percentage points compared to the 51.8 percent recorded in August. The Employment Index reading of 52.7 percent is up 1.5 percentage points from August’s figure of 51.2 percent.”
Waleed Said ,Technical Analyst GivTrade, said manufacturing is still expanding, but appears to be losing a bit of momentum.
"The part I'd watch is prices paid, which jumped to 77.9 from 71.1," he said. "That tells us cost pressure in factories is still building."
"The bigger story is around the Fed," Said said. "Expectations for more hikes have started to cool this week. Williams said on Tuesday that there's no urgency to raise rates again after the September hike, and yesterday's PCE data came in softer than expected, at 3.4% against 3.7%. The odds of an October hike have dropped below 50% as a result."
The problem is that bond yields haven't followed," he noted. "The US 10-year is still around 5.26%, its highest level since 2007, and yields are staying high across the board."
