With that backdrop for the markets, we asked analysts for their top picks for hot markets next year. As it turned out, a lot depends on your definition of "hot."
One common asset many analysts mentioned watching next year is the euro currency. Opinions differed about the direction the euro may take as well as its survival and long-term make up. "It’s really anybody’s guess [which way the euro will move] because we don’t even know how it will look," Kinker says. "One or more countries could pull out, but the flip-side is they could completely stabilize this mess. There’s so much in the air right now."
Patton called the euro his "number one bearish pick" for 2012. "We’re going to see the sovereign debt crisis expand. Even if by some miracle we get some delay in the contagion, there’s been a fundamental problem with the euro exposed in that they have no central resolution authority when they have issues," he says. Patton expects the EUR/USD to fall conservatively to 1.15-1.10. Further out, Patton says that "within five to 10 years, we’re not going to have the euro at all, or at least it will be in a dramatically different form."
This of course would be good for the U.S. dollar. Rodock agrees and expects the U.S. Dollar Index to do very well next year. "I’m looking for the U.S. dollar to have some legs under it," he says.
In addition to the euro and the dollar, some analysts say to keep watching gold in the first part of 2012, although there was disagreement about the way they expect the metal to perform going forward.
Gold prices have followed an almost exponential growth chart pattern since starting to rise in earnest in 2005 (see "Golden goose," below). Rodock says he expects gold to continue to be hot through 2012 and beyond because of fear and uncertainty in the marketplace. "Gold has turned back into its old safe haven. Even if the Eurozone does come up with a plan, you’re going to see a lot of support in gold," he says. "If economies start heating up and taking off, you still will see some of that inflation creep in. That’s almost an inevitable result of the easy money policies by some of the western central banks." Rodock expects to see our first $2,000 gold print in early 2012.
Patton has the opposite outlook for gold. "At one time, it was a real flight to safety trade, and it’s become anything but that now. It’s become a risk-on/risk-off trade, just like everything else," he says. Patton expects gold to be subdued as long as inflation remains a non-issue. "The Fed is clearly not concerned about inflation and that’s rightly so," he says.
At the moment, Patton says gold has given up its safe haven status to the U.S. dollar. "You can see that on the big down days we’ve had, rather than having gold up, you see gold down $30-$50 because it’s trading inversely to the U.S. dollar," he says. "The dollar has become the flight to safety and gold has become the risk-off trade, so it gets sold off when everything else gets sold off."
Given the public’s infatuation with gold, Patton says we’ve probably put in a pretty long-term top at $1,950, and he wouldn’t be surprised to see gold visit the $1,400-$1,550 range next year.