(Kitco News) – The gold market is holding on to strong gains but is seeing little reaction to weaker than expected sentiment in the manufacturing sector, according to the latest data from the Institute for Supply Management (ISM).
Tuesday, the ISM said its manufacturing index showed a reading of 57.5% for November, down from October’s reading of 59.3%. The data were weaker than expected as consensus forecasts were calling for a reading of 57.9%.
Readings above 50% in such diffusion indexes are seen as a sign of economic growth, and vice-versa. The farther an indicator is above or below 50%, the greater or smaller the rate of change.
The gold market is seeing little reaction to the disappointing economic data as prices hold nearly 2% gains after bouncing off critical support. February gold futures last traded at $1,813 an ounce, up 1.8% on the day.
Looking at some of the components of the report, the New Orders Index dropped to a reading of 65.1%, down from October’s reading of 67.9%.
The report showed renewed weakness in the U.S. labor market. The employment index dropped to a reading of 48.4%, down from the previous reading of 53.2%.
“This is a good report but that dip in employment into contractionary territory is a bit worrisome,” said Adam Button, chief currency strategist at Forexlive.com.
For gold prices, inflation pressure remain elevated with the prices paid index falling to 65.4%, a tick lower from October’s reading of 65.5%.
Katherine Judge, senior economist at CIBC said that the latest report suggests that the slowdown in demand is infecting the manufacturing sector, which has generally shown more resilience during the pandemic.
“Uncertainty surrounding fiscal support is growing as some programs are set to expire at the end of this year, coinciding with the prospect of larger-scale shutdowns, and suggesting that there could be near-term challenges ahead for the manufacturing sector, with a brighter light shining over the horizon as we get closer to vaccine deployment,” she said.
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