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Gold is trading near session highs following the release of disappointing data on the U.S. service sector, highlighting signs of slower economic growth. The Institute for Supply Management (ISM) reported that its Services PMI fell to 52.1 in November, down from October’s reading of 54.4 and below market expectations of 53.6. While the index remains above the critical 50 threshold, signaling that the sector is still in expansionary territory, the marked decline indicates waning momentum in one of the largest segments of the U.S. economy. The softening in services activity has reignited concerns that the Federal Reserve’s aggressive monetary tightening may be starting to weigh more heavily on economic activity.
From a market perspective, the weaker-than-expected data provided a tailwind for gold prices, which tend to benefit in times of economic uncertainty or when disinflationary signals emerge. Spot gold prices surged higher following the release, inching closer to key resistance levels around $2,040 per ounce. U.S. Treasury yields pulled back as bond markets reacted to the prospect of slower growth, while the U.S. dollar—the often-competing safe-haven asset—eased slightly. The inverse relationship between the dollar and gold appeared to amplify the precious metal’s gains during the session, as investors adjusted their portfolios in anticipation of potential shifts in monetary policy expectations.
The PMI report also carries broader implications for Federal Reserve policy. With the services sector contributing a significant share to U.S. GDP, a slowdown in this area could add to evidence that the economy is cooling in response to tighter credit conditions. Market participants have been closely monitoring data on both the labor market and economic activity to gauge whether the Federal Reserve will continue to hold rates steady or eventually signal future rate cuts. November’s disappointing services PMI adds to growing speculation that the peak interest rate cycle could be drawing to a close, which would likely continue to support gold as an attractive alternative asset.
In summary, the mixed macroeconomic signals painted by the ISM report are aligning with growing investor caution, particularly in regard to risk-on assets. Gold is benefiting as a portfolio hedge amid softening U.S. economic metrics and expectations for less hawkish Fed policy. While the services sector remains in mild expansionary territory, the deceleration could ripple through other market sectors, affecting equities and the dollar in particular. Eyes will now turn to upcoming inflation reports and employment data to provide further clarity on how the U.S. economy and financial markets might perform as we head into the final stretch of the year.
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