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ISM service-sector data that isn’t as good as expected supports safe-haven demand for gold and prices above $2,000,
As the U.S. economy slows down, the gold market continues to stay above $2,000 per ounce. The latest data from the Institute for Supply Management shows that the service sector is just above the point of contraction.
The ISM said Wednesday that its Services Purchasing Managers Index dropped to 51.2 in March from 55.1% in February. The majority of economists thought that the drop would be smaller, to 54.3.
When these diffusion indexes show numbers above 50%, it means the economy is growing, and vice versa. The rate of change is bigger or smaller depending on how far an indicator is above or below 50%.
Some analysts say that people continue to buy gold as a safe haven even though the latest economic data shows that fears of a recession are growing. Gold futures for June were last traded at $2,039.20 an ounce, which was about the same as the day before.
Even though the headline data was worse than expected, the chair of the ISM Services Business Survey Committee, Anthony Nieves, said that the economy is still growing, which shows that the service sector will continue to grow.
“The rate of growth in the services sector has slowed down. This is mostly because 1) the growth rate of new orders has slowed down, 2) the job market varies by industry, and 3) capacity and logistics keep getting better, which is good for supplier performance. Most of those who answered say they are optimistic about business conditions. In the report, he said:
When you look at the parts of the report, you can see that the business activity index dropped to 55.4% from 56.3 in February. At the same time, the New Orders Index dropped to 52.2% from 62.6% in February.
The report also said that the job market was losing speed. The employment index dropped from 54 percent in February to 51.3%.
The fact that the economy is slowing down is also helping to cool down inflation, which has dropped to 59.5% from 65.6% in February.
The fact that economic data has been poor, according to some analysts, supports the markets’ hopes that the Federal Reserve has stopped its aggressive tightening cycle. Analysts have said that the inflation data will give the central bank a sigh of relief because it shows that consumer prices are continuing to go down.
According to the CME FedWatch Tool, the markets have been pricing in a 50/50 chance for the last few days that the Federal Reserve will keep interest rates the same. As soon as the ISM data came out, though, these expectations shot up to nearly 70%.
