(Kitco News) - The gold market continues to hold support above $4,700 an ounce and could see further upside as the U.S. economy faces slowing growth and rising inflation pressures.
S&P Global reported on Thursday that its flash Composite Purchasing Managers Index (PMI) rose to 52, up from March’s reading of 50.3 and reaching a three-month high.
Although overall economic activity improved last month, the report said it remains relatively anemic.
The report also said that the service sector remains a drag on activity. S&P’s flash Services PMI rose to 51.3, up from 49.8 in March. The increase was better than expected, as economists had been calling for a drop to 50.5.
At the same time, the Manufacturing PMI rose to 54, up from March’s reading of 52.3. According to consensus estimates, economists were expecting a reading of 52.5.
Although the headline data came in better than expected, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said the economy continues to face some challenges.
“Over the past three months, we have seen the weakest expansion of output recorded since the start of 2024, with the war in the Middle East squarely to blame. The April PMI is broadly consistent with the economy struggling to manage annualized growth in excess of 1%, with the vast service sector acting as the principal drag,” he said. “There was better news from manufacturing, but here an expansion of output and orders could be partly traced to the building of safety stocks, with survey respondents reporting ‘panic' and ‘emergency’ buying ahead of price hikes and supply shortages, echoing the problems seen during the pandemic.”
At the same time, the report noted a sharp rise in inflation, with output prices rising at the fastest rate since mid-2022. Input price inflation, meanwhile, hit an 11-month high in April and was the second-highest in more than three years.
“Balancing the risks of inflation lifting sharply higher against the underlying weakness of economic growth presents policymakers at the Fed with a growing dilemma. However, it will likely become increasingly hard to make a case for rate cuts if inflation follows the path signaled by the PMI while the economy continues to eke out only modest growth,” said Williamson.
The gold market hasn’t been paying much attention to economic data, as prices continue to consolidate in a broad range. Spot gold last traded at $4,729.60 an ounce, down 0.20% on the day.
Analysts note that gold is caught in neutral territory, trying to navigate growing economic uncertainty and U.S. monetary policy. Higher inflation is forcing the Federal Reserve to maintain a neutral monetary policy, but this could also push the economy into a recession.
