Gold price jumps to daily highs as the U.S. service sector contracts in December

(Kitco News) The gold market advanced to new daily highs as the service sector fell short of expectations in December, contracting after 30 months of growth, according to the latest data from the Institute of Supply Management (ISM).

The Services Purchasing Managers Index (PMI) was at a reading of 49.6% last month, down from November’s 56.5%. The 6.9 percentage-point decline was a surprise to the downside as market consensus calls were looking for the index to come in at 55%.

Readings above 50 are seen as a sign of economic growth. The farther an indicator is above or below 50, the greater or smaller the rate of change.

Looking at the specifics, the new orders sub-index was at 45.2% after coming in at 56% in November. The business activity sub-index was at 54.7% compared to 64.7% registered in the previous month. The employment declined to 49.8% after November’s 51.5% reading. Economists keep a close eye on the latter number as a gauge of the employment situation in the country.

Meanwhile, inflation pressures cooled in December, with the price index edging down to 67.6% from the previous month’s 70%.

“The composite index ended a 30-month period of growth, contracting for the first time since two straight months of sub-50 percent readings in April and May 2020,” the report said.

In response to the data, gold jumped to fresh daily highs, with February Comex gold futures last trading at $1,864.60, up 1.30% on the day.

The latest numbers out of the service sector point to the U.S. economy already starting to slow at the end of the year, according to economists.

“The surprisingly large decline in the headline composite index reflected a sharp move lower for the new orders index (now 45.2 from 56.0),” said CIBC Capital Markets senior economist Andrew Grantham. “While recent tracking suggests that GDP growth held up much better than expected in Q4 last year, this decline in the ISM services will raise concerns that the economy was loosing momentum quickly and could have started 2023 on a soft footing.”