US PMI is slowing
The ISM’s (Institute for Supply Management) PMI (purchasing managers’ index) gauges the factory sector in the US. A number below 50 indicates contraction. A number above 50 indicates expansion and 50 indicates no change.
In April, the US PMI was 51.5—matching March’s figure and down from February’s seasonally adjusted 52.9. This is the sixth straight month of a decline for the US PMI. This is lowest growth since 50.1 was recorded in May 2013.
Eurozone PMI is increasing
While the US PMI is slowing, it’s picking up in the Eurozone. The Markit Eurozone Composite PMI for April came out at 53.9—almost the same as March, which was at an 11-month high.
- Spain’s PMI was 59.1—a 101-month record.
- Germany also recorded a solid increase in economic activity in April. Its PMI came in at 54.1.
- France’s output also expanded in April. It grew for the third consecutive month. However, the rate of decline was less.
- Italy’s rate of increase reached a ten-month high.
It’s important to track the US PMI and keep an eye on other economies’ manufacturing indices—particularly the 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 like the SPDR Gold Trust (GLD).
Gold stocks, including Goldcorp (GG), Barrick Gold (ABX), Iamgold (IAG), 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). Goldcorp, Barrick Gold, and Harmony Gold Mining form 7.5%, 6.8%, and 1% of GDX’s holdings, respectively.