Major Buy Signal For Gold And Why Stock Markets Are Ignoring Predictions Of Economic Collapse

BERLIN—The head of the International Monetary Fund warned that in addition to cutting yawning budget deficits Europe needs to do more to promote growth and stop the crisis from spreading to the world economy.

" It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," IMF Managing Director Christine Lagarde said before the German Council on Foreign Relations. " A moment, ultimately, leading to a downward spiral that could engulf the entire world," she said.

“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President for Development Economics.

Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.

“An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09” said Andrew Burns, Manager of Global Macroeconomics and lead author of the report. “The importance of contingency planning cannot be stressed enough.”

Felix Zulauf: Yes, I believe the peripheral nations have entered recession territory, and I believe it will get worse.

So, the situation in Europe will get worse before it gets better. Moreover, the ECB, which has its roots in the German Bundesbank, will see to it that the ECB does not become the lender of last resort until they are absolutely forced into it by the market. For investors, this is very important to understand. The new leader Mr. Draghi may leave Trichet’s conservative path, however, as since he is in power he has talked one way and acted in another way. This is delicate as the credibility of the ECB could be lost quickly.

In his speech at Davos, Soros will say it is “now more likely than now” that Greece will formally default in 2012, Newsweek said. Soros nevertheless thinks the euro will survive, according to Newsweek.

The world is facing a period of “evil,” Soros said, adding that he foresees Europe descending into chaos and conflict, while rioting in the streets of the U.S. will lead to a curtailment of civil liberties and the global economic system possibly collapsing altogether, Newsweek reported.

Dow Jones - courtesy yahoo.com

Bearish Gold Forecasts Suggest Soaring Gold Prices In 2012

The worse the news gets, the more the U.S. and the European Central Bank and China will print money.
In the past 10 years gold and silver have performed superbly. The gold price overshot on the upside when it reached $1,921 an ounce on Sept. 6. Now it is in a correction phase and could fall another $200.
It is not that the gold price will go up. It is that the value of paper money will go down. Diversification is important, and people should put 15% to 25% of their assets in gold.

It is easier to get your arms around oil than gold in terms of the numbers and demand.  Oil is a good investment in the next few years, with optionality to the upside if something extreme happens in the Middle East. Gold is a good diversifier, but not a great way to make money.

Gold will rally, then have a seasonal selloff. By the end of the year it could be up 15%, as has been typical in this 11-year secular bull market for gold.
Gold stocks have been terrible. They dropped 20% last year, so that makes them a better buy relative to the price of gold. Last year I owned a lot of gold. Now I have more money in gold stocks than in physical gold or the GLD [ SPDR Gold Trust].
I own a smaller amount of exploration companies through the GDXJ [ Market Vectors Junior Gold Miners exchange-traded fund] and a larger percentage of producers.

The world economy will experience a brutal slowdown. Deflationary forces are going to strengthen and commodities in general will decline. You can buy oil to hedge a decline in base metals. Gold started a cyclical correction within a secular bull market last summer. The first wave of selling is ending now. Gold has to be bought some time this year, probably in the second half, below $1,600. Then the monetary authorities will load their guns again and print more money, which will make investors buy more gold. The gold market is so tiny that when people want to shift just a small piece of their wealth into gold, the price flies to new highs.

A lot of people own gold as a hedge against inflation. I don't see inflation in the cards in the U.S. Capacity utilization in the manufacturing sector it is only 77%. We own a couple of gold stocks but buy them as we do other stocks. We look for high returns on equity and low P/Es. We own Barrick Gold [ABX], which trades for 7.8 times this year's expected earnings. Even absent a big upswing in gold prices, it will do well because production is growing.

Courtesy: Stockcharts.com

Courtesy: stockcharts.com