Gold price drops nearly $50 as the U.S. service sector grows in January

NEW YORK (Feb 3) The gold market is trading at fresh daily lows as the service sector beat expectations in January and grew after contracting in December, according to the latest data from the Institute of Supply Management (ISM).

The Services Purchasing Managers Index (PMI) was at a reading of 55.2% last month, up from December’s 49.2%. The 6 percentage-point advance was a surprise to the upside as market consensus calls were looking for the index to come in at 50.4%.

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 60.4% after coming in at 45.2% in December. The business activity sub-index was at 60.4% compared to 53.5% registered in the previous month. Employment was at 50% after December’s 49.4% reading. Economists keep a close eye on the latter number as a gauge of the employment situation in the country.

Meanwhile, inflation pressures cooled slightly in January, with the price index edging down to 67.8% from the previous month’s 68.1%.

“Ten industries reported growth in January, according to the Services PMI®, which was in expansion territory after a single month of contraction and the prior 30-month period of growth. The composite index has indicated expansion for all but three of the previous 155 months,” the report said.

The latest ISM service numbers point to a solid start to the year, said Capital Economics chief North America economist Paul Ashworth.

“The rebound in the ISM services index to 55.2 in January, from 49.2, reversed almost all of the sharp drop in December and leaves our composite ISM index at a level usually consistent with GDP growth of close to 2% annualised,” said Ashworth. “Together with the reported rebound in motor vehicle sales and surge in payroll employment, the ISM services survey suggests the economy enjoyed a strong start to the year.”

In response to the data, gold fell to fresh daily lows, with April Comex gold futures last trading at $1,884.20, down $47 on the day. The gold market was still digesting the U.S. economy adding a staggering 517,000 jobs in January and the unemployment rate dropping to 3.4% - the lowest level since 1969.

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