Gold prices continue to face challenges, testing support levels above $2,500 an ounce amid weak buying momentum, as the U.S. manufacturing sector remains in contraction.
On Tuesday, the Institute for Supply Management (ISM) released its U.S. manufacturing index, which rose to 74.2% from July’s 46.8%. While this uptick aligns with expectations, it still indicates contraction within the sector.
“Although the index shows slower contraction compared to the previous month, overall demand remains weak,” said Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee. “Companies are hesitant to invest in capital and inventory due to current federal monetary policy and election uncertainties. Production execution has decreased since July, impacting profitability.”
In diffusion indexes like this one, readings above 50% signal economic growth, while values below 50% indicate contraction. The distance from 50% reflects the rate of change in economic activity.
Gold has shown little reaction to the data, continuing to experience technical selling pressure. As of the latest update, December gold futures are trading at $2,515.40 an ounce, down 0.64% for the day.
The ISM report’s components revealed deeper weakness beneath the headline increase. The New Orders Index declined to 44.6% from July’s 47.4%, and the Production Index fell to 44.8% from 45.9% in July.
The Employment Index showed a modest improvement, rising to 46.0% from 43.4% previously. However, inflationary pressures are also mounting, with the Price Index advancing to 54.0% from 52.9%.
Thomas Ryan, North America Economist at Capital Economics, suggested that the ISM data is not promising for economic activity in the third quarter. “The ISM manufacturing index’s stagnation in July suggests that manufacturing output and GDP growth are losing momentum. The significant drop in the new orders index reduces the chances of a recovery in September,” Ryan stated.
