Gold price rally gains steam as U.S. new home sales drop 12.6% in July

The gold market is holding on to gains above $1,750 as the U.S. manufacturing and service sector are losing more momentum the expected in August. Tuesday, the S&P Global Flash U.S. Composite PMI said that preliminary manufacturing PMI data fell to 51.3, down from July’s reading of 52.2. The data was weaker than expected; according to consensus estimates, economists were looking for a reading around 51.8. At the same time, the service sector fell deeper into contraction territory, with its PMI falling to 44.1, down from July’s reading of 47.3. Economists were forecasting a reading of around 49.8. The report said that activity in the manufacturing sector has dropped to a 26-month low; meanwhile, activity in the service sector has fallen to a 27-month low. 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 seeing some new bullish momentum in initial reaction to the latest data. December gold futures last traded at $1,758.90 an ounce, up 0.60% on the day. Not only did the report highlight broad-based weakness in the U.S. economy, but the rate of decline was the biggest in the survey’s 13-year history, excluding the precipitous fall at the start of the 2020 pandemic. “August flash PMI data signaled further disconcerting signs for the health of the U.S. private sector. Demand conditions were dampened again, sparked by the impact of interest rate hikes and strong inflationary pressures on customer spending, which weighed on activity. Gathering clouds spread across the private sector as services new orders returned to contractionary territory, mirroring the subdued demand conditions seen at their manufacturing counterparts,” said Siân Jones, senior economist at S&P Global Market Intelligence. Although activity in both the manufacturing and service sector has slowed, the report noted that inflation pressures have also dropped. However, Jones said that the economy still faces a lot of challenges. “Although pointing to an ongoing movement away from price peaks, increases in costs and charges remained historically robust. At the same time, delivery times lengthened at the slowest pace since October 2020, albeit still sharply, allowing more firms to work through backlogs,” Jones said.