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Gold Rises on Another Sign of Recession

Gold Rises on Another Sign of Recession

US Manufacturing in Decline

The economy is continuing to shrink under the weight of the Federal Reserve’s aggressive interest rate hikes. The Institute for Supply Management (ISM) released its most recent report. It showed that US manufacturing has slowed to its weakest pace in more than two years. Economists were surprised when the ISM manufacturing index dropped more than expected.

Companies surveyed for the past four months have reported “softening new orders rates, the September index reading reflects companies adjusting to potential future lower demand,” said survey chair Timothy Fiore.1

The overall index narrowly missed falling into ‘economic contraction’ level. But the new orders index fell sharply into recession territory. It was the third time this year that the new orders index has contracted. Customers are pulling back orders as fears of a global economic slowdown increase. The decline in new orders foreshadows sluggish demand ahead. Reduced demand is thought to be caused by the declining purchasing power of households. Inflation has sapped people’s resources and forced them to make tough economic choices.

The current rate of inflation is still near a 40-year high at 8.26%. The Federal Reserve is raising interest rates at a breakneck pace to try and bring it under control. Since March, the U.S. central bank has hiked its policy rate from near zero to the current range of 3.00% to 3.25%. And last month, they signaled more large increases were on the way this year.2

Companies are scrapping their expansion and investment plans. Aggressive interest rate hikes by the Federal Reserve have made them too expensive. This is a prime reason for the decline in US manufacturing. Higher borrowing costs are also reducing consumer demand. They are undercutting spending on big-ticket items that are typically bought on credit.

The ISM report also showed supply chain issues are still hampering output. In another sign of encroaching recession, factory employment slowed dramatically. The ISM survey’s measure of factory employment dropped to 48.7 from 54.2 in August. That’s the fourth time the employment index has contracted this year.3

Gold Prices Rise

The price of gold increased in reaction to the report. Weak manufacturing activity in the US drove up the safe haven demand for gold. The yellow metal also went up because the dollar weakened on the news. The lower dollar spurred demand for the greenback-priced bullion among overseas buyers. Some economists think the dollar dropped because traders are hoping continued bad news will get the Fed to pivot away from their rate hikes.

All signs continue to point to recession. The one bright spot in all the data is that the value of gold keeps increasing. That’s why many investors are looking into a Gold IRA to protect their wealth. To learn more about how a Gold IRA can help you, contact us today.

Notes:
1. https://stocks.apple.com/AXlvyjfXmS427vd2i9914rw
2. https://www.mpamag.com/us/mortgage-industry/guides/what-is-the-uss-inflation-rate/412643#:~:text=The%20current%20rate%20of%20inflation,from%208.52%25%20in%20July
3. https://www.kitco.com/news/2022-10-03/Gold-prices-see-new-safe-haven-demand-as-ISM-manufacturing-index-falls-to-50-9.html

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