Gauge Your Market

The market (S&P 500) is up around 20% in the last 4 months.  Can we expect more of the same?  Many analysts use the first month of the new year as a gauge of how the year will look.  So far the year looks good, but what is propping the market up?  Lately it has been the relatively good news coming out of Europe even though in reality they still have not solved the problems.  The European Central Bank seems to be keeping the banks liquid which is a major help.  Even on the economic side there is a mixed bag of information.  Greece is still negotiating a debt swap deal and they have very little time before some big debts become due.  We can only watch from the sidelines and hope a deal can be brokered.Our country has its own set of problems.  Lawmakers must lift the debt ceiling so we can pay our bills.  Will the Fed start QE3 soon as many are predicting, will our economy pick up, what about inflation / deflation?  This week the Fed will give us their prediction of where interest rates are going and their target for inflation.  By setting a target for inflation it may serve as a placebo for the market and allow them to buy more bonds without causing alarm.

My belief is that the printing presses will be rolling in 2012 for many reasons.  One to buy bonds and dole out money, but also to devalue our currency and make us more competitive in the world market.  This in turn ratchets up the price of gold, silver, most commodities, and the stock market as well.  Holding gold and silver will allow you to retain your purchasing power, as the price of gold doesn’t really go up, but the purchasing power of our currency goes down.

Last year gold miner stocks (GDX) were down slightly while the gold price increased over 20% in US dollars.

There is a very good chance that the discrepancy will vanish.  Don’t rule out silver.  It was up around 15% last year even though it lost roughly 40% of it’s value toward the end of 2011.  This may be another chance at a huge rebound.  This leads me to believe that if gold and silver are headed higher we can expect their respective stocks to follow even though they haven’t been recently.  I believe a rubber band type rebound will close the gap between the metals and their stocks giving us some nice leverage in the near future.

Goldfinger