Market prospects for autumn 2012: oil, gold and stocks

Wider market indices in the US pushed to new highs in 2012 in the past two trading sessions. Along with capital move to more; gold, silver and oil followed suit. The combination of notable European economic stability and higher Federal Reserve bond purchases has led to a 10% rise in stocks, a 25% rise in WTI oil and a (gasp) increase in silver prices of 27% in the last two months.

It only takes a little digging beneath the surface to realize that this multi-month rally, which CNBC now calls “the most hated rally,” isn’t just based on hope and prayer. Overall, corporate earnings only exceeded negatively revised estimates by the same amount as in the past. Demand for oil has been steadily declining, and China’s and India’s central banks have eased their gold buying operations.

Overall, demand for investment vehicles continues to decline, both in the United States and around the world. For investors seeking refuge in gold or European or American stocks, the six-month outlook is not promising. Now, temporary upward movements will surely happen, but “buying and keeping” in this economic climate is not prudent.

It seems increasingly likely that the US Federal Reserve will conduct another round of bond buying (QE3); however, there is still no indication that U.S. fiscal issues are closer to resolving than they are at the moment in 2011. Until there is a federal-level legislative movement by Congress that guarantees a growth-friendly economic climate, our problems will continue and worsen. se. Look no further than the lukewarm monthly growth in jobs over the summer.

So what’s the move? Well, as detailed in “An Ounce of Gold Will Be $ 800 …” there are several strategies that could prove profitable in the next six months:

First, short silver. At its current price of nearly $ 34 an ounce, “poor man’s gold” is actually just naive gold. Silver is an industrial metal, and although it was considered a protection against inflation and preservation of value, it is actually just an expensive industrial metal. Look for a 50% drop in silver.

Second, sell gold. I don’t like shading gold because it is an internationally accepted means of preserving value and real protection against inflation, but at these bubble prices, gold is too expensive to buy at these levels. I’ll wait under $ 1,000.

Third, short American stocks. Unlike European stocks, many U.S. stock values ​​have maintained and even risen in the last six months. The idea that European problems can be isolated from Europe is absurd.

Europe is currently off the radar because the ECB said it would buy “an unlimited number of Spanish and Italian bonds.” The problem with this strategy, similar to the US, is that monetary policy cannot correct fiscal issues!

The fall of 2012 may be when Ben Bernanke and Mario Draghi discover that artificial demand for American and European bonds is, at best, a short-term patch for an emergency economic situation, not a long-term solution to a structurally deficient economy. Don’t be the one holding their bag!