According to the September 2011 edition of the Fiscal Monitor of the International Monetary Fund, 44.4 percent of Italian general government debt is held by nonresidents, i.e., presumably foreigners

Will Germany will remain a safe haven? Even that is far from clear. According to the I.M.F., gross government debt in Germany will be 82.6 percent of gross domestic product at the end of this year (

Goldman likes gold. "Consumers: We expect gold prices to continue to climb in 2011 given the current low level of US real interest rates. real interest rates to remain lower for longer, supporting higher gold prices through 2012Goldman also likes Silver, Copper, Zinc, WTI and Brent. In other words: QE3 is coming.

Although the clearing of the Cushing surplus and the progress on the European debt issues support a higher trajectory for WTIand Brent crude oil prices moving into 2012, we see these developments as early steps in a longer process toward the morecomprehensive solutions that each market requires. More specifically, in the WTI market the Cushing surplus has cleared, butthe Midwest surplus remains. We expect that it will take the addition of the substantial rail capacity scheduled for 1H12 tonarrow the WTI-Brent spread from its current level near our 3-month target of -$16.00/bbl toward our 12-month target of -$6.50/bbl

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 $118.50/bblBrent Crude OilWith world economic growth continuing to drive world oil demand growth well in excess of non-OPEC production growth, theoil market continues to draw on inventories and OPEC spare capacity in order to balance. In our view, it is only a matter oftime until inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand,keeping it in line with available supplies. While near-term downside risk remains as the oil market negotiates the impact fromweak US growth and European sovereign debt issues on the pace of world economic growth, we believe that the market willcontinue to tighten to critical levels by 2012, pushing oil prices substantially higher to restrain demand.$125.00/bblRBOB GasolineGasoline inventories have recovered from their very low levels in April and early May but gasoline demand remainsdepressed despite the substantial decline in retail prices since the peak in early May. While gasoline cracks continue to remainstrong, this reflects weakness in WTI prices rather than strength in gasoline prices as margins relative to LLS crude oil havelargely normalized by now. Over the medium term, upside risks on gasoline cracks are likely limited given the expansion inrefining capacity over the past few years.$3.05/galUSGC Heating OilWhile US distillate stocks have started the year well above last year’s levels, inventories have declined sharply over the pastweeks. This supporting trend is driven primarily by strong export demand from Latin America and increasingly Europe ratherthan domestic demand, which remains well below last year’s levels. We expect this export demand to continue this winter,likely supported by diesel-fired electricity generation demand in China and Japan.$3.42/galNYMEX Nat. GasUS natural gas prices stabilized in October after generally declining in 3Q 2011, but the weather-adjusted balance remains soft.This has been mainly driven by strong production growth, which has been recently exacerbated by infrastructure addition inthe Marcellus Shale, underscoring the structural nature of the excess supply in US natural gas markets. Going forward, webelieve the overall balance is likely to remain soft as production continues to outpace demand, although increased heating-related gas demand may provide support in the short term. Accordingly, while we maintain our 4.25/mmBtu average NYMEXnatural gas price forecast for 2012, we are increasingly cognizant of downside risks to this forecast.

$4.25/mmBtuUK NBP Nat. GasAlthough UK NBP prices have remained relatively stable in the $10.00-$10.50/mmBtu range for the past month, UK gasforward prices have declined, especially relative to forward oil-indexed gas prices, as European economic headlinesweakened. While our UK gas forecasts are not too dissimilar from the market’s expectations for 1H2012, we maintain ourbullish view on 2H2012 UK NBP prices, consistent with our economists expectations of improved economic activity – andhence increased gas flows – relative to this winter.87.70 p/th

Industrial Metals

LME AluminumWhile the aluminum market has softened over the past month, evidenced in particular by falling physical premia across mostregions and a substantial weakening in Chinese near-dated timespreads, we believe that there is upside to prices over the next3-12 months. The market is set to remain much closer to balance than many market participants expect, particularly in China,and rising Chinese costs of production for high cost producers (particularly in USD terms) will remain supportive. Althoughbroadening Eurozone sovereign pressures pose downside risk to our forecasts in the very short term, we expect bullish pricecatalysts, including Chinese power shortages in some major aluminum producing regions and stronger oil prices, will besupportive for prices.$2650/mtLME CopperCopper fell below $7,000/t temporarily in early October and has since rebounded primarily on the back of stronger-than-expected Chinese imports for September and falling Chinese and LME stocks. Strike-related disruptions at Grasberg thatresulted in Freeport declaring force majeure in late October also lent support. Indeed, the concentrate market has beentightening against normal seasonal trends and lower prices have resulted in the scrap market remaining tight. We continue toexpect a small deficit in 2012 and as such remain bullish on copper from current levels. In particular, any easing shift in China,which the recent commodity sell-off and corresponding decline in inflationary pressures may facilitate, and/or renewed Chinabuying at current lower price levels, would lead to a sharp rebound in prices, in our view. European turmoil and the knock-oneffect to economic growth remains the key downside risk to our constructive copper view.$9500/mtLME Nickel Nickel has rebounded only marginally from its lows of around $18,000/t since the heavy sell-off in September. We continue toexpect a small nickel surplus in 2012 as new production comes online. As both demand and sentiment towards demandrecovers through 2012, we expect high cost nickel pig iron will still be needed to clear the market. European turmoil and theknock-on effect to economic growth remains the key downside risk to our nickel forecasts.$21000/mtLME Zinc Zinc prices are currently low enough to motivate reduced production in coming months, and Chinese zinc production isgrowing by less than expected. On net, we continue to believe that a lessening in fears with regards to European sovereigndebt and a perceived easing in Chinese policy will see zinc prices rebound. European turmoil and the knock-on effect toeconomic growth remains the key downside risk to these views. Medium term, we continue to expect zinc to become moresupply-constrained owing to growing demand from China as well as important mine closures that are set to take place in2013-15.$2400/mt

Precious Metals

London GoldWe expect the low US real interest environment, combined with continued Central Bank buying will continue to providesupport for gold prices in 2011. Further, with our US economics team expecting US economic growth to remain slow through2012, we expect US real interest rates will remain lower for longer. Consequently, we now expect gold prices to continue torise through 2012, reaching $1,930/toz in 12 months.$1930/tozLondon SilverOver the long run, silver prices tend to track gold prices. Thus, our silver forecast reflects the historical ratio to gold.$32.2/toz

Agriculture

 CBOT CornCorn prices trended higher in October on signs of robust US domestic demand and concerns for further yield downgrades.The November WASDE confirmed these lower supplies with a sharply lower US corn yield. We expect continued strong USdomestic demand to further draw down already low corn inventories and as a result forecast higher corn prices. We alsoexpect that corn prices will remain elevated relative to wheat and soybean prices.550c/buCBOT SoybeanSoybean prices edged higher in early October following a WASDE release that pointed to a tighter US balance. However,continued weak US exports sales generated a sharp underperformance relative to the corn price in the second half of themonth. In the November WASDE, the USDA raised both its US and global soybean inventory forecasts, pointing to aloosening of the 2011/12 soybean balance relative to the corn balance. As a result, we expect that soybean prices will continueto trade at historically low levels relative to corn prices in the near term. While we continue to expect that soybean prices willoutperform corn prices over the next 12 months, the improving prospects for South American soybean production havedelayed this move.1200c/buCBOT WheatWheat prices trended slightly higher in October, driven by corn prices. But front-month prices continued to trade at a discountto corn prices given the significantly larger inventory levels. The November WASDE confirmed that the global and US wheatmarkets are amply supplied, especially relative to the tight US corn market. The confirmation of these high wheat suppliesdespite stronger global feed demand lead us to expect that wheat prices will continue to trade at a discount to corn prices inthe coming months, with the outperformance of wheat relative to corn prices likely now deferred until at least next summer.590 c/buNYBOT CottonCotton remained pegged near $1.00/lb in October. The USDA made only minor changes in its November US and global cottonbalance tables, which continue to point to a large recovery in cotton inventories in 2011/12. We see growing confidence inboth the level of US production following this summer’s drought and the prospect for large 2011/12 foreign cotton productionand expect that cotton prices will decline on the back of this recovery in US and global inventories.85 c/lbNYBOT CoffeeAfter reaching their lowest levels since last December, coffee prices rallied mid-October on easing concerns over the Europeansovereign debt crisis and growing concerns over potential losses in Central America production. This strength in prices wasshort lived, however, with intensifying concerns on the European fiscal situation. We expect lower global 2011/12 productionon Brazil’s off-year of the Arabica plants two-year cycle, strong EM demand growth and low beginning stocks to keep priceselevated and our 3-mo price forecast remains 235 c/lb. And while Brazil is expected to have a record off-year harvest in2011/12, following beneficial wet conditions this spring, recent torrential rains in Central America have likely caused damageto both the local crops and infrastructures and present upside risk to this forecast. Over the medium term, we expect acontinued supply response to the current high coffee prices during the 2012/13 crop year with a large “on-year” harvest inBrazil under average weather conditions. As a result, our 6- and 12-mo price forecasts of 200 c/lb and 175 c/lb point to lowercoffee prices. Forecasts for a return of the La Nina weather pattern this winter create downside risk to Brazilian production andin turn upside risk to our 6-mo price forecast.175 c/lbNYBOT CocoaAfter reaching their lowest levels in two years, cocoa prices rallied modestly at the end of October on easing concerns over theEuropean sovereign debt issues and surprisingly strong July – September cocoa grind in Europe and North America. Thisstrength in prices was short lived with both intensifying concerns on the European fiscal situation as well as ICCO’s forecastfor a slowdown in grindings in 2011/12 weighing on prices most recently. We reiterate our 3- to 12-mo forecast of $2,700/mton our expectation for a balanced 2011/12 cocoa market. The growing potential for global cocoa production to exceed demandfor a second year in the 2011/12 season that started last month creates downside risk to our price forecast. Over the longerterm, the production outlook for the Ivory Coast remains key as aging orchards, poor infrastructure and political instabilityhave curbed production and investment over the past few years. The introduction of a guaranteed minimum price for farmersby the Ivory Coast government, equal to as much as 60 percent of international prices, could support investment in the sector.$2700/mtNYBOT SugarThe rally in sugar prices in early October was short lived on renewed concerns over the European sovereign debt issues.Recent news flow also points to a sequential improvement in supplies: while Unica lowered its Brazil’s Center South crushestimates again, the revision came in slightly above expectations on an unexpected rise in yields late in the season. Further, agood monsoon will likely support India’s production and points to a potentially large increase in exports while concerns forsupply losses in Thailand following the floods are easing. A bumper production in Russia, Ukraine and EU should finallyweigh on sugar prices in coming months. Net, we are lowering our 3- to 12-mo sugar price forecast to 22 c/lb from 28, 24, 24c/lb previously. We don’t expect a larger decline in prices for now, given Unica’s expectations for limited production growth inBrazil for the upcoming 2012/13 season given recent adverse conditions. The ongoing risk of a return of La Nina weatherconditions this winter would present upside risk to our price outlook.22 c/lbCME Live CattleLive cattle prices rallied modestly over the past month. While current large feedlot counts point to large fed cattle supplies incoming months, low feeder cattle inventory will continue to limit placements in coming months and point to strong live cattleprices into 2012.130 c/lbCME Lean HogWhile we expect domestic and foreign demand for pork to remain strong this year, larger pig and hog inventory than last yearas of September 1 continues to point to a slight expansion of the US hog herd and we expect hog prices to underperformrelative to live cattle prices in 2012.95 c/lb

, the odds of recession due to domestic factors appear reasonably contained. ... However, the curve reflecting the international odds suggests more imminent danger to the economyt indicates that the odds are greater than 50% that we will experience a recession sometime early in 2012. Because the international odds of recession are more imprecisely estimated, one must be careful with a strict interpretation of this result.

nless the eurozone moves toward greater economic, fiscal, and political integration (on a path consistent with short-term restoration of growth, competitiveness, and debt sustainability, which are needed to resolve unsustainable debt and reduce chronic fiscal and external deficits), recessionary deflation will certainly lead to a disorderly break-up. With Italy too big to fail, too big to save, and now at the point of no return, the endgame for the eurozone has begun