Stock Market Correction Likely Over

1year Chart of the TSX index

The recent downturn in global stock markets has likely run its course. The TSX, the index I follow, has been unable to break below it's January breakout levels of roughly 13400. The TSX has given up all of its 2011 gains, however over the last 52 weeks it has returned over 15% so historically speaking we're still in good shape.

By the end of the year my expectation is that the market will break out into record highs, possibly somewhere in the 15000 pt range, before any significant retracement. My reason for this is the commodities and resources Canada produces are in continued to be in huge demand by emerging markets which are still showing strong, unabated growth rates which are likely to continue in due course.

An interesting point about gold is that, in my opinion, the rally is likely beginning to unwind. It has mostly been a play against inflation and the US dollar, and as we've seen by a relatively stagnant core inflation numbers, and as oil and other commodities price lower in the 2nd half of the year, gold and silver will likely ebb going forward. The difference between gold and oil, for example is that oil has an end user. It is bought and consumed, not stored so the demand for something like oil in recurring. The demand for gold lately has been somewhat more of an emotional play and this will contribute significantly to some downward price pressure.