The US ‘fiscal cliff’ and Europe growth risks are the dark clouds over an otherwise improving outlook for the “industrial” precious metals.
US industrial production rose 1.1% m-o-m in November, far higher than the 0.3% consensus expectation and is likely to maintain that momentum judging by the flash December Markit manufacturing PMI which rose to an 8-month high.
The flash HSBC Chinese manufacturing PMI rose to a 14-month high of 50.9, confirming the economic recovery is gaining momentum in China as well. Normally, the more cyclical precious metals such as silver, platinum and palladium should perform well in this environment.
However, businesses remain reluctant to invest because of the uncertainty surrounding potential automatic tax rises and benefit cuts if the US Congress doesn’t agree to a new fiscal program. With minimal economic data to be released in the final weeks of the year, the markets will be particularly sensitive to outcomes from the budget negotiations. Holdings of gold ETPs extended their all-time highs to $84.6bn as investors continue to hedge against worst-case outcomes from fiscal cliff discussions.