What might cause me to be wrong? US stocks are not especially cheap, especially on long-term metrics, and particularly not compared with European and Japanese stocks. Also, this bull market is now long in the tooth, having started almost four years ago. The September highs in the S&P and Dow were not accompanied by fresh highs in weekly momentum on the relative strength index, a situation that commonly heralds major peaks.
UK equities
Unlike the US indices, the FTSE has struggled to break above its 2011 bull market highs in 2012. At the time of writing, it has failed even to match its March 2012 peak at 5989. The chart therefore looks much less bullish than those of the US markets, having been essentially trapped in a giant range since late 2009. The uptrend from this summer's lows has been rickety, to say the least.
Despite this, I remain positive towards the UK large-cap index as we enter 2013. Rather than having traced out a giant topping pattern over the past three years or so, the FTSE has most likely been trading sideways in advance of a big break to the upside. I therefore see it breaking through its 2011 highs at 6107 and heading back towards 6500 in the course of next year.
While I do not believe it personally, it is not out of the question that the FTSE is in the process of forming a major long-term top or is at least stuck in a massive holding pattern. If the former were true, a drop to 3759 might be in order, or to 4800 in the latter case. Still, I am bullish and would be especially interested in buying the index as it recovers after dips below its rising 55-day exponential moving average.
Government bonds
The great bull market in UK gilts is most probably in its very late stages and may have even ended already. In my preview of 2012, I called for the yield on the 10-year gilt to drop below 2.23 per cent this year to 1.78 per cent, equating to new price highs. In the event, it did indeed drop to a new record low in yield of 1.408 per cent.
While new record price highs and yield lows are conventionally seen as bullish by technical analysts, I cannot get excited here. To buy gilts at these levels for anything other than the very short term, one has to believe that the UK is destined to suffer a Japanese-style lost decade of weak growth and low inflation or deflation. While the former is likely, the latter is very unlikely.
In my view, a multi-decade bull market in government bonds is nearing its end and a new secular bear market is in the offing. In this environment, I see the 10-year gilt as nothing but a vehicle for short-term trades, rather than a long-term holding like equities. Were the yield to hit its 21-month exponential moving average and then drop back once more, I would contemplate a tactical long position.
DAX
I do not foresee the single European currency collapsing and believe that continental equities are generally very cheap. This is true of stocks in the more troubled nations such as Spain and Italy, but also in the eurozone's strongest member state, Germany. The DAX index has romped ahead in 2012, rising by almost one-third over the course of the year to date. With new post-2009 highs above 7600 virtually accomplished, I am looking for more as we enter 2013.
The most obvious target for Germany's leading equity index next year is its previous record high of 8151. The DAX peaked around there both in 2000 and 2007, so investors may get apprehensive once it approaches this level anew. On the last two occasions, the DAX subsequently suffered losses of 73 and 56 per cent respectively. However, there is no reason why this must happen a third time.
The best buying opportunities since early 2009 have generally come when the DAX has dipped through its 21-week exponential moving average and then recovered back above that line. I would probably seek to lighten up on tactical long positions when the index records readings of above 70 per cent on its relative strength index and its price gains begin to slow.
Precious metals
I had been hoping for gold to resume its long-term uptrend in 2012. While the yellow metal has risen by as much as 16.3 per cent during the course of the year, it has struggled to break decisively out of the range it has been stuck in since September 2011. In that time, it has made three unsuccessful attempts to get and remain above $1,800 (£1,117) an ounce. However, I continue to be bullish on the outlook.
In my eyes, the action on gold's chart since its all-time record price-high of $1,923.70 in September 2011 represents a pause within a major bull market. A glance back across history suggests that deep and extended corrections are entirely normal and indeed healthy during bull runs. Such phases help to set up the next leg upwards, which I reckon will carry gold to new all-time highs.
There are those who believe that gold may have already peaked. However, the last boom in the yellow metal only came to an end once the age of negative real interest rates also ended. I believe that we are far from that point today. It is the firm intention of central banks and governments around the developed world to continue their policy of inflating away their debt burdens with interest rates below the rate of inflation.
In this environment, I am looking for both gold and silver to break higher in 2013. The key levels to overcome are around $1,804 in gold and $37.58 in silver. In time, I see gold heading to well above $1,924 and silver above $50. The main risk to my forecast comes from further crisis in the eurozone, which would see the dollar strengthen and therefore a likely weakening of commodity prices.
