Let Optimism Ring

Let Optimism Ring

Accurate or not, more and more assessments are filtering into mainstream economic thought that say the global economy - especially in the highly developed world - is going to get stronger and stronger as this decade progresses. Some are saying the next decade will be even better. (Of course, remember that U.S. President Herbert Hoover famously said in mid-1932 that "prosperity is just around the corner.")

Some analysts are predicting, in fact, that the next decade will be a second run of "The Roaring Twenties." This, despite the clear evidence that the U.S. economy especially has built-in weaknesses, which, if not technically structural, indeed are a drag on growth. We can lump these all under "income disparity," although it has children called underemployment, mismatched training, and high-cost college tuition.

The IMF said Tuesday in its World Economic Outlook that it expects the global economy to grow by 3.7% in 2014, up from an October forecast of 3.6% growth.

The report fueled expectations that central banks would wind down stimulus programs such as U.S. QE3 bond purchases going forward, as the Fed, too, raised their outlook and predicted the 21014 U.S. economy to expand 2.8%, up from an October forecast of 2.6%. 

An increasing number of observers expect the Fed to trim its easing program to $65 billion per month from the current 75 billion at its next policy meeting eight days from now. 

The curtailing of bond purchases has two curious effects (aside from depressing precious metals prices). It puts a cramp in the side of Wall Street equities bulls. And it has creates the even stranger reaction that, in spite of diminished propping up of the economy, it makes people feel more optimistic about the future. And, as we all know, sentiment is an extremely powerful force in the marketplace.

Today the London Bullion Metal Association, a trade group of large banks and key bullion dealers, said it expects gold prices to remain flat within a range in 2014, group members Also Tuesday, the London Bullion Metal Association, group members predicting an average of $1,219 an ounce, down 0.9% from the first week of the year, and to remain in a range of $1,067 to $1,379 throughout the year. 

Today at 4:30 New York time we are sitting at about 1242, the upper middle area of that range.