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Spot gold has shot upward directly following a poor ISM manufacturing report, trimming losses of 0.53% to -0.23% at the time of writing. The ISM dropped to 54.2% in February following January’s 56.6% vs 55.6% expected.

Key Takeaways

• The ISM manufacturing index dropped by 2.4% unexpectedly, leading to ongoing concerns surrounding the health of the US manufacturing industry.
• The index has hit its lowest level since November 2016.
• The report shows that a broad decline in new orders, production, employment, and prices have all contributed to the decline of the index.

The ISM manufacturing index shows poor performance across multiple components for the month of February, down 2.4% vs 1% expected. The manufacturing industry has been the subject of several damning reports in recent months as the trade war between the US and China continues to impact the industry with punitive tariffs disrupting business.

At over a two-year low, the ISM index has done nothing to alleviate the negative interpretation of the health of the industry.

ISM Manufacturing Index for February slipped -2.4 points to 54.2, its lowest level in two years. New orders slipped -2.7 points to 55.5. That said, the index remains in unambiguous expansion territory (>50). pic.twitter.com/mf33PG8NJ4

— Patrick Chovanec (@prchovanec) March 1, 2019

Broad Decline

New orders, a general indicator for future industry performance, declined from 58.2 to 55.5 in February, indicating more weak activity on the horizon. The employment index dropped from 55.5 to 52.3 compared to the previous month, the lowest in two years and the third consecutive decline. The prices paid index fell from 49.6 to 49.4, a three-year low, indicating decline in the cost of materials.

Exports rose from a two-year low and imports increased to a two-month high. This data, along with the drop of customer inventory to an 8-year low, indicates that there is life yet in the beleaguered industry.

An index of supplier deliveries fell to a four-month low, the lowest since May 2017, while a measure of backlogged orders rose the most in six months.

After hitting a 14-year high just six months ago, the decline in the gauge could be viewed as an indicator of upcoming loss of forward economic momentum in the US. This is arguably in contrast with a recent report indicating that increased business spending had pushed Q4 GDP above expectations, but in line with expectations of some kind of upcoming economic slowdown in the future.

Expert Outlook

Timothy Fiore, chairman of the ISM business survey committee, said “Comments from the panel reflect continued expanding business strength, supported by notable demand and output, although both were softer than the prior month. The manufacturing sector continues to expand, but inputs and prices indicate easing of supply chain constraints.”

Market Reaction

Gold ticked upward directly following the report, halving losses at one stage before succumbing to selling pressure once again. The precious metal is now trading once again near session lows at $1,306.86/oz, down -0.45% on the day with a high of $1,315.25/oz and a low of $1,304.48/oz.

A strong dollar and a drop in risk aversion sentiment have likely created the selling pressure today, perhaps aided by relatively weak inflation pressures indicated in the latest PCE index report which indicates that the central bank is unlikely to implement further rate hikes, making gold a less-appealing near-term option for some traders.