Track These Manufacturing Indices for Direction of Gold Prices



Key indicators

It’s important to track the US Purchasing Managers’ Index (or PMI) and keep an eye on the manufacturing indices of other economies, particularly ones that impact the US dollar most.

The difference between the two sets of information points to the strength of the dollar. The strength of the dollar, in turn, gives you a clue about the direction of gold prices and gold-backed ETFs such as the SPDR Gold Trust (GLD).

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Gold stocks, including Goldcorp (GG), Barrick Gold (ABX), and Harmony Gold Mining (HMY), are influenced by the strength of the US currency. The same is true for ETFs that invest in these stocks, including the VanEck Vectors Gold Miners ETF (GDX). GG, ABX, and HMY form 7.5%, 6.8%, and 1.0% of GDX’s holdings, respectively.

US PMI slowing

The Institute for Supply Management’s (or ISM) PMI gauges the factory sector in the United States. A number below 50 indicates contraction. A number above 50 indicates expansion, and 50 indicates no change.

The United States’ March PMI was 51.5 compared to February’s seasonally adjusted 52.9. This is the fifth straight month of decline for the United States’ PMI. Although the US PMI is slowing, it’s still better than many developed countries and is still in the expansion mode.

Eurozone PMI strengthens

The Eurozone PMI rose to a ten-month high of 52.2 in March. PMI was 51.0 in February. A weaker euro led to more export orders. Spain and Ireland were the main outperformers in the Eurozone in March. Improved growth was also seen in Germany, Italy, and the Netherlands.

Strong US data vis-à-vis data for other economies usually lead to a stronger US dollar, which is negative for gold. However, according to this metric, PMI is picking up in Eurozone countries while it’s slowing in the United States.


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