Manufacturing Goes Deeper Into Recession, Yet Gold Remains Muted. Why? / Commodities / Gold & Silver 2019

The ISM Manufacturing index fell 0.2 point to areading of 48.1 in November. However, gold struggles to find momentum. What isgoing on exactly?

U.S.Manufacturing Sector Slumps Further

The Institute for Supply Management announced that its index of national factoryactivity dropped from 48.3 in October to 48.1 last month. The number was belowexpectations and it also remained below the 50 threshold, indicatingcontraction – shrinking for the fourth straight month. In other words, the manufacturing sector is still inrecession.

We all know that. But what about the future and thebroad economy? Well, situation looks better here, as the ISM index remainsabove the 42.9 level, which is associated with a recession in the broadereconomy. And the recent improvement inChina’s PMIs prompt some to say that the ISM is bouncing along the bottom.Moreover, the strike at General Motors is over, while Boeing hopes to resumedeliveries of its 737 MAX.

However, the decline in new orders – the New OrdersIndex registered 47.2 percent in November, a decrease of 1.9 percentage pointsfrom the October reading of 49.1 percent – suggestsdownside risk, if anything. The fact that Trump restored tariffs on steeland aluminum imports from Brazil and Argentina will not help the domesticmanufacturing sector which already is struggling with higher tariffs, trade uncertainty,slowing profit growth and weak overseas demand.

Following shaky economic reports – besides data onmanufacturing, the index of pending home sales dropped 1.7 percent, while the personalincomes were flat in October – the Federal Reserve Bank of Atlanta slashed its fourth-quarter GDP estimate from 1.7 to1.3 percent annualized rate, revivingworries of a slowing domestic economy. 

Implicationsfor Gold

What does it all mean for the gold market? From thefundamental point of view, weakerindustrial production should support gold prices. This is because themanufacturing sector’ problems could not only translate into slower economicgrowth, but also force the Fed to adoptagain a more dovishstance and cut interestrates further in 2020.

But themanufacturing recession failed to spur rally ingold in thefourth quarter of 2019, as the chart below shows. The goldprices are clearly struggling to find momentum, even in the face of disturbingdata on the U.S. manufacturing sector.

Chart 1: Gold prices (London P.M. Fix, in $) fromOctober to December 2019.

However, other economic data ended up better thanexpected. Investors also became more optimistic about the trade deal betweenChina and the U.S. So, given where the general stock markets are, gold is actually not doing bad – butthe key test will be yellow metal’s behavior in response to the recentgreenback’s weakening. Stay tuned!

If you enjoyed the above analysis, we invite you tocheck out our other services. We provide detailed fundamental analyses of thegold market in our monthly Gold Market Overview reports andwe provide daily Gold & Silver Trading Alerts with clearbuy and sell signals. If you’re not ready to subscribe yet and are not on ourgold mailing list yet, we urge you to sign up. It’s free and if you don’t likeit, you can easily unsubscribe. Sign uptoday!

Arkadiusz Sieron

Sunshine Profits‘ MarketOverview Editor

Disclaimer

All essays, research and information found aboverepresent analyses and opinions of Przemyslaw Radomski, CFA and SunshineProfits' associates only. As such, it may prove wrong and be a subject tochange without notice. Opinions and analyses were based on data available toauthors of respective essays at the time of writing. Although the informationprovided above is based on careful research and sources that are believed to beaccurate, Przemyslaw Radomski, CFA and his associates do not guarantee theaccuracy or thoroughness of the data or information reported. The opinionspublished above are neither an offer nor a recommendation to purchase or sell anysecurities. Mr. Radomski is not a Registered Securities Advisor. By readingPrzemyslaw Radomski's, CFA reports you fully agree that he will not be heldresponsible or liable for any decisions you make regarding any informationprovided in these reports. Investing, trading and speculation in any financialmarkets may involve high risk of loss. Przemyslaw Radomski, CFA, SunshineProfits' employees and affiliates as well as members of their families may havea short or long position in any securities, including those mentioned in any ofthe reports or essays, and may make additional purchases and/or sales of thosesecurities without notice.

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.