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Editor’s Note: The article incorrectly stated that the ISM Index rose to a 17-year high. The Index actually rose to its highest level since 1983.
(Wallace Refiners) – The gold market continues to hold on to early session gains even as the U.S. manufacturing sector saw a significant rise in sentiment in March, according to the latest data from the Institute for Supply Management (ISM).
Thursday, the ISM said its manufacturing index showed a reading of 64.7% for March up from February’s reading of 60.8%. The data was much more robust than expected, as consensus forecasts were calling for a reading around 61.5%.
According to reports, sentiment in the manufacturing sector is at its highest level since 1983.
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 holding steady despite the signs of growing momentum in the U.S. economy. June gold futures last traded at $1,723.30 an ounce, up 0.45% on the day.
Although the U.S. economy continues to see a robust recovery from the COVID-19 pandemic, Timothy Fiore, chair of the ISM, said that there are still challenges the manufacturing sector faces.
“The manufacturing economy continued its recovery in March. However, Survey Committee Members reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus (COVID-19) impacts limiting availability of parts and materials,” he said. “Extended lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are affecting all segments of the manufacturing economy.”
Looking at the components of the report, the New Orders Index rose to 68% last month, up from February’s reading of 64.8%. Meanwhile the Production Index rose to 68.1%, up from the previous level of 63.2%.
The labor market also improved with the Employment Index rising to 59.6%, up from the February reading of 54.4%.
However, improved growth continues to come with a cost as inflation pressures remain consistent at higher levels. The ISM Price Index fell to 85.6%, down slightly from February’s reading of 86%.
Many analysts have said that rising inflation pressures will be positive for the gold market as it will keep real interest rates low, even if nominal bond yields continue to rise.
Andrew Hunter, senior U.S. economist at Capital Economics, said that consumers are only starting to see the effects of inflation.
“With demand only likely to strengthen further over the coming months as the economy reopens and the latest fiscal boost feeds through, this adds to the growing body of evidence that both headline and core inflation are likely to surge over the coming months and remain unusually high even once the temporary base effects linked to last year’s plunge in prices fade,” he said.
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