1. Gold will top $2,400 an ounce.
The long-term bull market in gold marches on. Goldwon’t make a straight shot to a new inflation-adjusted high. Expect bullion prices to experience some pullbacks when the U.S. dollar is strengthening. The Federal Reserve has said it plans to leave interest rates near zero until the middle of 2013. As long as the real return on U.S. bondsis negative and other countries debase their own currencies, investors will turn to gold as an alternative currency and another form of protection against ongoing debt problems in developed and emerging nations.
2. The Brent-WTI spread falls toward historical levels.
As oil supplies and demand in the U.S. Midwest reach more of a balance, the spread between Brentand WTI oil futureswill approach historical norms — a $3-$10 range. One of the major pipelines flowing into Cushing, Okla. (the key hub for delivery of NymexWTI oil futures) is reversing direction next year after a change in ownership; by the second quarter, 150,000 barrels of oil a day go from the Midwest to Gulf Coast. The gap between the benchmark crudes should shrink as the perception that WTI prices are based on a landlocked storage hub is erased. Brent and WTI prices also should more closely reflect the global supply-demand picture and world economic outlook.
3. Retail gasoline prices rise above $4 a gallon.
Oil prices may provide the foundation, but gasoline will likely take off on its own merits. Gasoline futures, more than oil, drive prices at the pump. Gasoline prices usually are at their lows in the fourth quarter and peak between March and May, as refineries undergo maintenance and switch from winter to summer-grade gasoline. Further fueling the surge: the closure of a large refinery near Philadelphia and possible shutdowns of two more along the Delaware River. Fewer gasoline supplies along the East Coast, including the New York Harbor (which sets prices for RBOB gasoline futures) will push retail gasoline prices toward 2008 highs.
Looking back at my predictions for commodities in 2011, I scored a C-.
1. The commodities rally continues.
It did and gains were muted compared to the year earlier.
2. Crude oil prices will be range-bound.
I said prices would be in the $70-$90 range, but U.S. prices, WTI, broke out of that range during a broader, three-month commodity rally from March through May. Prices then fell back into my suggested range, but rallied back over $100 recently.
3. ETF demand drives metals.
Demand for gold bullion from exchange traded funds rose 58 percent in the third quarter from the year-ago period, according to the World Gold Council.
4. Silver trumps gold.
That was not the case, even though silver and gold prices did reach new highs in the first half of the year, as I predicted.
5. Sharp corrections coming.
Volatility in commodities has remained high and steep corrections have happened more than enough in 2011.