(Kitco News) - The gold market continues to hold support around $4,000 an ounce, but it could face further headwinds as relatively stable activity in both the manufacturing and services sectors reduces safe-haven demand for the precious metal.
S&P Global reported on Friday that its flash Composite Purchasing Managers Index (PMI) fell to 57.6 in October, down from September’s reading of 58.4.
“US business activity growth slowed in October but remained close to September’s recent high in response to a further improvement in order books. Growth rates in both manufacturing and services remained among the best seen over the past five years as robust domestic demand was accompanied by renewed signs of export growth,” the report said.
Activity in the manufacturing sector was slightly better than expected, with its PMI rising to 56.0, up from September’s reading of 55.9. According to consensus estimates, economists had expected a decline to 55.5.
Activity in the services sector was also relatively stable, with its PMI falling to 57.9, down from 58.8 in September. The decline was in line with economists’ expectations.
The gold market has been struggling to hold support at $4,000 an ounce since its sharp selloff on Thursday, and the latest economic data is not expected to provide any relief. Analysts note that healthy economic activity gives the Federal Reserve room to raise interest rates to cool inflation pressures. At the same time, the data reduces fears that the U.S. economy is headed for a recession.
Spot gold last traded at $4,010.27 an ounce, down 0.33% on the day.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said that, outside of the COVID-19 economic recovery, recent months have seen the strongest period of growth for U.S. businesses since early 2015.
“October’s flash PMI data indicate that the US economy continues to boom at the start of the fourth quarter. The output readings from the survey are consistent with GDP growing at a 5% annualized rate after a 4% expansion was signalled for the third quarter. Especially healthy corporate earnings and profits are also indicated, and hiring has surged as companies seek to boost capacity to fulfil stronger customer demand,” he said.
Although sentiment and activity remain healthy, the report noted that inflation pressures are not abating. Williamson said that inflation remains one of the biggest concerns facing the economy.
“However, cost pressures remain a key concern, notably as the renewed surge in oil prices reverberates through to impact a wide variety of goods and services. Supply chain bottlenecks have meanwhile intensified, and order book backlogs are growing, making it easier for companies to pass higher costs on to customers. The result is the sharpest increase in selling prices for over four years to a pace that indicates consumer price inflation is likely to rise further above the Fed’s target in the coming months,” he said.
