Gold market continues to struggle even as U.S. economic activity drops to 11-month low
The gold market continues to struggle to attract safe-haven demand, even as U.S. economic activity slows under mounting weakness in the service sector.
S&P Global reported Tuesday that its flash Purchasing Managers Index for the service sector came in at 51.1 in March, down from February’s revised reading of 51.7. Economists had expected an improvement to 52.0.
At the same time, the U.S. manufacturing sector showed stronger-than-expected activity, with its PMI rising to 52.4 from February’s reading of 51.6. Economists had forecast a largely unchanged reading of 51.5.
The overall composite index showed economic activity falling to its lowest level in 11 months.
“The slowdown was led by the service sector, where business activity grew at the weakest pace for 11 months amid a weaker gain in new work, the latter driven by a steepening rate of loss of export sales. Slower growth and falling orders, especially in terms of exports, were commonly blamed on subdued confidence among both consumer and business customers,” the report said.
Despite the disappointing economic data, the gold market is not seeing any fresh momentum. The precious metal remains under solid technical selling pressure. Spot gold last traded at $4,376.50 an ounce, down 0.67% on the day.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said that the latest report shows a concerning trend of slower growth and rising inflation as the war in Iran takes its toll on the economy.
“The PMI data are indicative of GDP rising at an annualized rate of just 1.0%, with a modest 1.3% expansion signalled for the first quarter as a whole. The survey’s price gauges, meanwhile, point to consumer price inflation accelerating back to around 4%, hinting at a growing risk of the US moving into an environment of stagflation,” he said. “The Fed will therefore need to juggle these intensifying upside risks to inflation against the growing risk of the economy losing growth momentum, with much depending on the duration of the war and its impact on energy prices and global supply chains.”
The report said that input costs saw their latest monthly increase in 10 months. The report added that higher prices were widely linked to the war-related spike in energy costs and tightening supply conditions.
