Crude oil has extended its recent declines following a disappointing set of US ISM manufacturing data,which helped trigger another bout of broad-based risk aversion. The print of 51.3 was the lowest in six months and well below economists’ expectations for a reading of 56. Newswires suggested the figures may have added to investors’ concerns about the pace of the US economic recovery, which was spurred by some weak economic data for December.
Investor sentiment remains highly vulnerable to negative news-flow due to fears over emerging markets and the potential effects of Fed ‘tapering’. Dovish rhetoric from Fed officials, Lacker and Evans, who are set to speak over the next 24 hours may help ameliorate risk appetite, which in turn could help support growth-sensitive commodities like copper and oil.
The ramifications of such a scenario for precious metals is somewhat clouded. On one hand, a dovish Fed may fuel recovering anti-fiat demand, boosting gold and silver. On the other, if a delay in stimulus reduction boosts risk sentiment, that may drive US Treasury yields higher, thereby increasing the opportunity cost for owning metals and sending prices lower.