As I stated in my previous article titled “Will there be a QE 3?”, weak market data coupled with negative market sentiment is being reflected in the stock market. 2011 was a dismal year for most stock investors. The chart below depicts the 2011 rate-of-returns for different asset classes.
Also, our governments may decide to create another round of stimulus during the first half of 2012, to counter-act these negative forces in the markets. However, In hindsight the negative market should be embraced as assets prices retract back to their equilibrium from the excess liquidity.
A second reason for the prediction of another quantitative easing package is due to the American 2012 elections this November. As a policy to create optimism and regain some consumer confidence in the markets, money printing will be created. This policy essentially pushes the can down the road again, and creates an even bigger problem when it comes due. If this event does occur, interest rates will remain low, and therefore, most assets prices will continue to inflate i.e. stocks, real-estate and commodities due to money being cheap. On the other hand, currencies (paper money) will re-trace their long-term downwards trajectory towards to the bottom. In this situation, the presidents are looked upon as favourable candidates as he helped move asset prices up (at the expense of a weaker dollar) and to the majority of the people will take this as favourable as most can-not see the direct impact to their savings in the bank.
So what does this translate in the markets?
- Gold will continue to be an attractive investment, I expect gold to re-test its 2011 high of $1895/oz and consolidate. I also expect an upward move to $2000/oz, although, it will be faced as a majour pshycological barrior. However, I do expect gold to be hovering above $2000/oz by the end of 2012.
- Silver will also be an attractive investment, and I do expect silver to be the one of the best preforming assets of 2012. Silver should out-perform gold in 2012. Silver will most likely re-test its high of $48/oz and consolidate. I expect silver to be hovering above $50/oz by the end of year 2012.
- Oil I believe will do marginally good this year, however, nothing like in 2011. I expect a final oil price to be at approximately $110A barrel.
- Dow Jones I expect this index to make a comeback this year 2012. However, in terms of gold it will still lose. I expect the DJ/gold ratio to continue to decline and possible reach 7:1, therefore, may reach 14000 by the end of the year.
- Other Commodities should also do good in 2012, expect for natural gas.
- Currencies I expect them to continue their downwards trend. However, commodity countries i.e. Australia, Canada, Brazil, should do ok.
- Bonds will probably be net losers after inflation.
- Real estate(rental properties) Should also do marginally ok as an asset (in general) However, I expect real estate to perform better in commodity rich areas.
At the end of my predictions, the only asset that I personally do not want to be in is cash or bonds. 2012 will not be a year of “cash is king” please refer to my previous article about fiat currencies for more info about paper money. As inflation wipes out the saving of most, people that are in the know should safeguard their investments in tangible asset that are inflationary hedged, and this will most likely preserve their wealth. As there are no guarantees, and the above predictions are made according to some kind of stimulus package, if the reverse where to happen, we would most likely see the risk off trade (bonds, cash etc.)