Editor's Note: Prices for many precious and base metals hit record highs in 2010, as economic uncertainty rattled around the globe. What does 2011 hold for gold, silver, platinum, palladium, copper and other metals? Kitco News reporters have prepared a series of stories which examine what is in store for 2011, not only for metals but for currencies, stocks and the overall economy: 2011 Precious Metals Outlook

(Kitco News) - Stock indexes are expected to rise in 2011, supported by what’s helped them rise in the later part of this year: loose monetary policy, stimulus spending and good corporate earnings.

That doesn’t mean that it will be a straight rise higher for equities. Analysts said volatility could be a factor in trading as the concerns that have been a drag on risky assets--the European fiscal crisis, U.S. housing and household debt--could ignite again and anchor the financial market.

Alan Bush, senior financial futures analyst at Archer Financial Services, was one of the first analysts to spot the current rally in equities. He said what’s lifting the market now will continue to support equities in 2011.  “Macroeconomics tells us that S&Ps will be higher all next year. I expect the gains will come next year for the same reasons it came this year – stimulus from the Fed, low rates of zero to 25 basis points for two years now and QE (quantitative easing). I’m expecting that the strength in the economy will continue at an accelerated pace,” Bush said.

His target for S&Ps is 1350, which could be about 10% higher from here. Currently, March S&P futures at the Chicago Mercantile Exchange are trading around 1250.

Bush said aside from housing and unemployment, many areas of the U.S. economy are showing growth, such as manufacturing. Economic growth is helpful to riskier assets like stocks. Further, it can help industrial metals like silver and platinum group metals as demand increases, he said.

Binky Chadha, analyst at Deutsche Bank, said the strategic and tactical cases for U.S. equities should unite to lift the market. Deutsche Bank’s year-end target for S&Ps for 2011 is 1550. “(A) 25% price appreciation would not be atypical for a post-midterm election year, historically the strongest in the election cycle,” he wrote in a research note. On average, the third year of a president’s term is usually a harbinger of strong equities.

Strategically, Chadha said he expects growth, noting equities have followed long cycles and 10-year returns are at a low and equities are cheap. The tactical view is based on what he calls seven catalysts: “a strengthening recovery, with jobs growth to pick up and credit growth to resume; positive data surprises; a low earnings bar; cheap multiples; a move toward the center in policy making; asset re-allocation back to equities; and a favorable demand-supply balance.”

Spencer Patton, president of Steel Vine Investments, sees S&Ps up about 10% from current levels as economic growth should support equities. “The economic data is improving, there’s no doubt about that. I see the S&P going up on better earnings. But I think the recovery is not going to be at the pace we’re hoping for to get job growth,” he said. “The efficiency of the American worker is nothing short of amazing. It’s filled the gap of workers let go.”

To be sure, not everyone is predicting sunny days for the equities. Rich DeFalco, president, West Cooper Asset Management, said there are a still a lot of problems that need to be worked out in the U.S. economy, such as the housing market, big deficits and the historically high unemployment. He also points to the high levels of underemployed people as a problem for the U.S. economy that is not being considered when looking ahead to next year. Short-term market prices might be higher, but there are longer-term structural problems for the U.S. “These are really difficult times,” he said.

As far as earnings go, he’s not entirely convinced that companies aren’t lowering expectations for growth to show upward surprises during quarterly earnings. DeFalco said there’s a lot of “media hype” about retail sales going into Christmas, but he pointed out they’re not much better than last year. He thinks the markets are in a false sense of security and wouldn’t be surprised to see a January break in equities. “Nothing to panic over,” he said.

Chadha said there are risks to the stock market rally. He said there are several factors to watch for, including a disorderly correction in the bond market, problems resurfacing in Europe, higher oil and commodity prices, tightening by emerging markets and finally, financing problems from state and local governments in the U.S. “Risks will entail corrections to the extent they materialize, but we see positive drivers winning out,” he said.

By Debbie Carlson of Kitco News dcarlson@kitco.com

2011 Precious Metals Outlook

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