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(Wallace Refiners) – The gold market is seeing further selling pressure, hit with another positive economic report, as the reopening of the U.S. economy spurs more momentum and growth in the service-sector, according to Institute for Supply Management (ISM).
Thursday, the ISM said its nonmanufacturing Purchasing Managers Index showed a reading of 64.0% in May, up from April’s reading of 62.7%. The data was better than expected as consensus forecasts were calling for a reading of 63.0%.
“The Services PMI reached another all-time high in May,” the report said.
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 was seeing significant selling pressure ahead of the report and has fallen deeper into negative territory on initial reaction. August gold futures last traded at $1,869 an ounce, down 2.14% on the day.
The report noted broad-based gains in the service sector as all 18 services industries reported growth.
“There was continued growth in the services sector in May. The rate of expansion is very strong, as businesses have reopened and production capacity has increased. However, some capacity constraints, material shortages, weather-related delays, and challenges in logistics and employment resources continue,” says Anthony Nieves, chair of the ISM Services Business Survey Committee.
Looking at the components of the report, the business activity index increased to a reading of 66.2, up from April’s level of 62.7.
There is some positive news for gold investors. The report continued to highlight growing inflation pressures. The prices index rose to a reading of 80.6, up from the previous reading of 76.8.
“The last time the Prices Index was this elevated was when it registered 77.4 percent in July 2008; the all-time high is 83.5 percent in September 2005,” Nieves said.
Paul Ashworth, chief U.S. economist at Capital Economics, said that the latest inflation data highlights a risk that the Consumer Price Index hits 5% “soon.”
Despite the strong headline number, the labor market is not as bright. The report said that the employee index dropped to a reading of 55.3, down from April’s reading of 58.8.
The U.S. labor market is seeing mixed messages on Thursday, the day before the U.S. Labor Department releases its nonfarm payrolls numbers for May. Earlier in Thursday’s session private sector payrolls processing company ADP said that the U.S. economy created nearly 1 million jobs. However the latest ISM service-sector, which is highly correlated to the government data shows slower than expected growth.
“The numbers today emphasized just how important non-farm payrolls are tomorrow,” said Adam Button, chief currency strategist at Forexlive.com. “There’s a fear of a [1 million] jobs report right now and I don’t think that’s going away, but the ISM number is one indicator that shows there is a strong jobs market, but it’s not sizzling.”
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