Gold price holding gains following in-line drop in ISM service sector PMI

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Gold prices are just off session highs seeing some technical buying momentum even as data continues economic activity falling in in line with expectations.

Thursday, the Institute for Supply Management (ISM) said its nonmanufacturing index showed a reading of 56.9% for August down from July’ reading of 58.1%. The data was relatively in line with expected as consensus forecasts were calling for a reading of 57%.

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.

Ahead of the report, the gold market seeing renewed buying momentum with prices pushing to session highs. The latest economic data have had little impact on the market, in initial reaction. December gold futures last traded at $1,952.30 an ounce, up 0.39% on the day.

Looking at the components of the report, the business activity index dropped to a reading of 62.4%, down from the previous reading of 67.2%. Meanwhile new orders dropped sharply to 56.8%, down from July’s reading of 67.7%.

The service sector labor market also remains under pressure. The report said that the employment index rose to 47.9%, up from July’s reading of 42.1%.

Adam Button, chief currency strategist at Forexlive.com said that this is the sixth consecutive reading the employment index has remained under 50%.

“It’s not a great sign for Friday’s non-farm payrolls report,” he said.

Although the headline data was better than expected, Katherine Judge, senior economist at CIBC, said that this is adding to the list of data points highlighting slower growth.

“The service side of the US economy appears to have shifted into a lower gear in August according to the ISM’s index,” she said. “Given still-elevated levels of the virus, the stalling seen in mobility indicators, the drop in consumer confidence, and uncertainty around further government income support, it appears that the US recovery is now on softer footing.”

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