February’s ISM Non-Manufacturing report came in at 59.7 percent vs 57.4 expected, signifying strong continued growth in the US economy. This positive data point came after Friday’s mostly negative ISM Manufacturing report which dropped 2.4 percent to 54.2 percent. Both indicators reading above 50 shows that the US economy is still healthy and in an expansionary period. After today’s ISM Non-Manufacturing data, spot gold took about a $4 hit before retracing most of that loss in the following hour.
ISM Manufacturing Report 3/1/19 Recap:
This past Friday gold was trading higher following a poor ISM manufacturing report. The ISM Manufacturing index dropped 2.4% vs 1% expected, bringing to light the declining strength of the US manufacturing industry. The trade war between the US and China has impacted US Manufacturing substantially. Amid the trade war pressure, the ISM manufacturing index has dropped to 54.2%, marking a two-year low. Even with all the trade war pressure the index sits above 50%, and anything above 50% is considered an economy in expansion.
ISM Non-Manufacturing Report 3/5/19 (10 AM EST) Recap:
Today’s Non-Manufacturing report came in at 59.7 percent vs 57.4 expected, 3 points higher than January’s figure of 56.7 percent. This signifies strong continued growth in the service sector. The Index is a weighted index from 4 sub-indexes; Business Activity, New Orders, Employment and Prices Index. The New Orders Index came in 7.5 points higher than January’s figure at 65.2 percent, 57.7 percent in January.
The Non-Manufacturing Business Activity Index increased for the 115th consecutive month to 64.7 percent, 5 points higher than January’s 59.7 percent reading. One negative reading to note is the Employment index decreased 2.6 points to 55.2 percent. Even though the Employment index is down vs January’s figure the reading above 50 still signifies an economy in expansion. The Prices index was down 5 percentage points when compared to January reading, coming in at 59.4 percent. Even though two sub-indexes were down, and two sub-indexes were up, the weighted index increased, surpassing expectations, and continuing the story of a strong US economy.
Gold’s Price Action:
On top of the strong ISM Non-Manufacturing Report, we also saw new home sales increase 3.7 percent to a seasonally adjusted annual rate of 621,000 units, the highest level since May 2018. Both reports signifying a strong US economy and housing market. Gold took a strong hit as the dollar rallied on these data points. The dollar rally/gold sell off lasted for about 30 minutes before retracing most of the move. Gold and dollar are mostly flat on the day with less than a .25% gain for the dollar and less than a .25% loss for gold.
Further positive economic data will likely lead to more dollar strength and gold weakness with the most recent Federal Reserve meeting being a good example. Over the past month about 2 billion worth of funds has been pulled out of the GLD ETF with about 1 billion worth of funds being pulled out this week alone. See image below:
The white line is the total troy oz that the GLD ETF holds and the yellow line is spot gold. This sizable change in the GLD gold ETF indicates an adjustment in positioning among traders. The fed slowing down the rate hike cycle appears to be the big driver behind weaker gold, a stronger dollar and a stronger US stock market. Look out if the fed decides to put their foot back on the gas and indicate further rate hikes as the expectation is that these trends would reverse.
Gold Price Chart
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