The Eurozone’s Banking Secret

There’s no doubt that markets will remain fragile. Every ounce of optimism has been retorted with pessimism. Once again we saw how volatile our markets. While it’s easy to find many stocks that are now significantly undervalued, it’s becoming much harder to pull the trigger. Most of the professionals in the industry have already taken an early Christmas holiday. Bid support on less liquid exchanges, such as the TSX Venture, have dwindled dramatically and companies that once traded millions of shares per day are now trading a few thousand here and there.

There’s no doubt that markets will remain fragile. Every ounce of optimism has been retorted with pessimism. Once again we saw how volatile our markets.

While it’s easy to find many stocks that are now significantly undervalued, it’s becoming much harder to pull the trigger.

Most of the professionals in the industry have already taken an early Christmas holiday. Bid support on less liquid exchanges, such as the TSX Venture, have dwindled dramatically and companies that once traded millions of shares per day are now trading a few thousand here and there.

The numbers speak for themselves: In November 2010, the TSX Venture had an overall trading volume of around 8 billion. This November, that number has dropped down to 3.7 billion. Daily averages for November 2010 were 366 million shares for a total value of $208.8 million. This year, daily averages are only 171.6 million shares for total value of $ 84.9 million per day.

The lack of bid support means there are going to be even better bargains for those willing to stomach the risk over the holidays. When investors leave the market early, bid support drops. Those throwing in the towel or benefitting from tax loss selling will force the juniors to levels even lower then where they are today. With many of the juniors already trading at significant discounts, that means an even better risk-reward profile for those willing to go long.

If you’re going to take the risk before the year is over, be sure to look for companies that have cash on hand. Lots of it. No one knows what’s going to happen in Europe and despite some incremental resolution this Friday in Brussels, their problems are far from over.

On home turf, there still remain major concerns in both employment numbers and housing. For all we know, the markets may continue to tumble or they may rebound with aggressive strength in the New Year. While things appear grim, remember that most bull markets begin in the darkest of time. Because of the unknown, companies with cash-on-hand will be better suited to weather the storm.

The mentality that I keep going back to is that gold will outperform under any scenario, as I mentioned back in 2009 in, “The Report that Shocked the World.”

Every day, there are more reasons to favour gold and other metals. Last week, we got word of more.

The Eurozone Banking Secret

Just last week, the Wall Street Journal Reported the central banks are already preparing for life after the euro with countries studying printing national currencies in case the single monetary union collapses.

At least one – the Central Bank of Ireland – is evaluating whether it needs to secure additional access to printing presses in case it has to churn out new bank notes to support a reborn national currency, according to people familiar with the matter:

In recent weeks, officials at Ireland’s central bank have held preliminary discussions about whether they might need to acquire additional printing capacity in case the euro zone ruptures or Ireland exits in order to return to its prior currency, the Irish pound, according to people familiar with the matter. Officials have discussed reactivating old printers or enlisting a private company, the people said. “All kinds of things are being looked at that weren’t being looked at two months ago,” according to a person at one meeting. A spokeswoman for the Irish Central Bank declined to comment. – WSJ

You can read the full article here: Banks Prep for Life After Euro

The Power of Gold

As the central banks continue to print more money, they’re also protecting their own wealth by continuing to purchase gold at record pace.

According to the World Gold Council, total central bank gold purchases in the third quarter more than doubled from the second quarter and were almost seven times higher than a year earlier as countries continued to diversify reserves. At 148.4 metric tons, gold buying among central banks was at the highest since the sector became a net buyer of the precious metal in the second quarter of 2009.

Gold investment demand reached 486.1 tonnes, a rise of another 33% year over year. That’s equal to $25.6 billion, almost double the US$13.9 billion seen in Q3 2010.

The list of countries adding to reserves also continue with Thailand, Bolivia, Kazakhstan and Tajikistan among some nations adding gold to their reserves in September. This has been a record year for central bank gold purchases (see The Hoarding Has Begun.)

Gold purchases by the central banks have already been reaping the benefits of exchanging currency for bullion. Switzerland’s central bank said on Oct. 31 it returned to a profit in the first nine months as gold holdings helped counter losses on currency reserves.

This trend will no doubt continue.

Don’t Be Left Behind

The central banks around the world are already preparing for the worst by buying gold and looking at new forms of currency.

But they have a major advantage you don’t: The Printing Press.

Protect yourself from inflating currencies: Buy gold.

Disclosure: I am long gold and silver through ETF’s and bullion, as well as long both major and junior gold and silver companies.

Until next week,

Ivan Lo

Equedia Weekly

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