The gold market opened the week on a strong note, but gains were quickly tempered by robust U.S. manufacturing data. The Institute for Supply Management (ISM) reported that its Manufacturing Purchasing Managers Index (PMI) rose to 55.5 in October, up from 54.5 in September, surpassing expectations for an unchanged reading. Susan Spence, Chair of the ISM Manufacturing Business Survey Committee, noted that four of the five subindexes, New Orders, Production, Supplier Deliveries, and Inventories, showed faster growth than the previous month, while Employment growth slowed slightly.
Gold prices had been testing resistance near $4,000 an ounce but retreated after the ISM data was released. Spot gold last traded at $3,955.60 an ounce, up 2% on the day. The stronger-than-expected economic activity reduces gold’s appeal as a safe-haven asset, while elevated inflation pressures add to the challenges facing the precious metal. The Prices Index in the report dropped by nearly three percentage points but remained high at 75.2, slightly below economists’ forecasts of 77.2.
Key components of the report showed the New Orders Index rising to 55.3, up from 55.2 in September, and the Production Index increasing to 59.0 from 56.7. However, the Employment Index fell to 52.4, down from 52.7, signaling a slowdown in the manufacturing sector’s labor market. Analysts warn that solid economic activity may give the Federal Reserve more leeway to maintain its focus on reducing inflation to its 2% target, posing ongoing risks for gold.