Hong Kong

Apparently, figures have just been released showing that 591 million Chinese are now on-line. That’s an increase of+10% on last year’s figure. So, the Chinese are connected.

Recent dramatic declines in gold prices and strong redemptions from physical ETFs (such as the GLD) have been interpreted by the financial press as indicating the end of the gold bull market. Conversely, our analysis of the supply and demand dynamics underlying the gold market does not support this interpretation. As we have shown in previous articles, the past decade has seen a large discrepancy between the available gold supply and sales. Many recent events suggest that the Central Banks are getting close to the end of their supplies and that the physical market for gold is becoming increasingly tight. The recent sell-off was all orchestrated to increase supply and tame demand. We believe that central planners are now running out of options to suppress the gold price. After taking a pause, the secular gold bull market is set to continue.

The recent decline in gold prices and the drain from physical ETFs have been interpreted by the media as signaling the end of the gold bull market. However, our analysis of the supply and demand dynamics underlying the gold market does not support this thesis. In our view, the bullion banks’ fractional gold deposit system is testing its limits. Too much paper gold exists for the amount of physical gold available. Demand from emerging markets, who do not settle for paper gold, has perturbed the status quo. Thus, our recommendation to investors is the following: empty unallocated gold accounts and redeem your gold in physical form (while you still can).

Trading of spot bullion of 99.99 percent purity on the Shanghai exchange exceeded 20 tons every day between April 16 and May 6. That’s more than four times the daily average in 2012. Volume reached a record 43.27 metric tons on April 22.

China’s net gold imports from Hong Kong increased 40% in May from a month earlier as the metal’s deepening slump continued to attract bargain hunters to bullion shops in China and Asia.

• India Joins Brazil to China in Efforts to Tighten Liquidity (BBG)
• Seven dead as police and protesters clash in Egypt (Reuters)
• U.S. senators fail to cut deal, head for showdown on filibuster (Reuters)
• Gasoline Tankers Beating Crude for First Time on Record (BBG)
• Smithfield's China bidders plan Hong Kong IPO after deal (Reuters)
• Bitcoin ETF plan struggles to find support (FT)
• Big Home Builders Gobble Up Rivals Starved for Cash (WSJ)
• Putin wants Snowden to go, but asylum not ruled out (Reuters)
• Zimmerman's lawyer calls prosecutors 'disgrace' to profession (Reuters)
• McDonald’s to bring Big Mac to Vietnam (FT)
• Korean Pilots Avoided Manual Flying, Former Trainers Say (BBG)

In an effort to soften the blow to our American readers, here is an analogy: You know when you move out of your parents’ house and live on your own, how you start hanging out with your friends’ families and you realize that actually, your family was a little screwed up? Stuff you always assumed was normal your entire childhood, it turns out was pretty weird and may have actually screwed you up a little bit. The point is we don’t really get perspective on what’s close to us until we spend time away from it. Just like you didn’t realize the weird quirks and nuances of your family until you left and spent time with others, the same is true for country and culture. You often don’t see what’s messed up about your country and culture until you step outside of it. And to our foreign readers, get your necks ready, because this is going to be a nod-a-thon.

• An actual Bloomberg headline: Granny’s Gold Bars Are Key to Vietnam Push to Boost Dong (BBG)
• Gay delivers further body blow to troubled sport (Reuters)
• China Wealth Eludes Foreigners as Stocks Earn 1% in 20 Years (BBG)
• Bernanke Boom Signaled by Yield Surge as Market Recalculates (BBG)
• Portugal's Parties Set Deadline for Pact (WSJ)
• Corporate Spending Set to Surge in U.S. (BBG)... or not at all based on the actual corporate data
• Legal Fears Slowed Aid to Syrian Rebels (WSJ)
• A mega-camp adds to the Boy Scouts’ troubles (Reuters)
• GSK accused of being ‘ringleader’ in China probe (FT)
• 19 Hospitalized in US-Ukraine Army Exercise - Ministry (RIA)
• Egypt Islamists march as senior U.S. official visits (Reuters)
• German spies made use of U.S. surveillance data (Reuters)

Tired of tapering talk? We couldn't resist. Then, on to more pressing matters. Seems an investment in China might just not be what it seems to be.  Think Three Paddy Hat Monty.

Edward Snowden may be America's persona most non grata in the entire world, but he has an insurance policy against "accidents": a treasure trove of supposedly damaging secrets about the US that will hit the public domain if something were to happen to the 30 year old whistleblower. A trove is so damaging that according to Glenn Greenwald, Snowden "poses more of a threat to the U.S. than anyone in the country’s history." Well, maybe a threat to the "government" which now only represents the interests of various corporations and Wall Street, but certainly not to what the US was supposed to be before it was hijacked by special interests, lobbies and the creature from Jekyll Island.

Trading volumes for gold and silver on the Shanghai Futures Exchange (ShFE) jumped to record highs today a week after the bourse launched after-hours trading, driven by a surge in investment and hedging demand, according to Reuters.

Looks like the Russian guy who deleted his tweet earlier this week can undelete it:

• SNOWDEN ASKS RUSSIA FOR POLITICAL ASYLUM: RIA
• SNOWDEN SAYS HE WANTS TO STAY IN RUSSIA, INTERFAX SAYS
• PUTIN'S SPOKESMAN SAYS RUSSIAN POSITION ON SNOWDEN ASYLUM SAME
• SNOWDEN MEETING TO EXCLUDE VIDEO, PHOTO RECORDING DEVICES: RIA
• SNOWDEN TO COMPLY WITH PUTIN'S DEMAND NOT TO HARM U.S.: RIA

That terminal food sure must be something. Either that, or he is seriously entertaining Anna Chapman's marriage offer.

Immediately in the aftermath of the Snowden revelations, various political action committees and their ideologically affiliated polling services took to convincing the general public that according to "popular opinion", a "majority" of Americans found Snowden to be a [traitor|hero]. A month later, with the the dust having settled somewhat, the US public has had some more time to consider the implications of living in the United Stasi States of America. And sure enough, another poll has just been released, this time by Quinnipiac. Its findings are as follows: a majority of U.S. registered voters consider Edward Snowden a whistle-blower, not a traitor, and a plurality says government anti-terrorism efforts have gone too far in restricting civil liberties, a poll released today shows. Fifty-five percent said Snowden was a whistle-blower in leaking details about top-secret U.S. programs that collect telephone and Internet data, in the survey from Hamden, Connecticut-based Quinnipiac University. Thirty-four percent said he’s a traitor.

Gold is little changed near a one-week high, and is marginally higher in dollars as the dollar has retreated from a three-year high, and higher in most currencies. The gold market continues to digest the ramifications of gold borrowing costs surging to the highest since the post-Lehman Brothers scramble for gold bullion. Gold Forward Offered Rates (GOFO) or the cost to borrow gold remains negative and overnight the 1 month GOFO has gone from -0.106% to -0.11167%. Other durations eased marginally. The lack of liquidity in the the interbank London Good Delivery gold market (400 ounce gold bars) has pushed gold forward rates, known as “gofo”, into negative territory, meaning that gold for future delivery is trading at a discount to physical market prices – a rare situation that has occurred only after the Lehman Brothers collapse and near the bottom of the gold market in 1999. The last time forwards were negative was in November 2008, when a scramble for physical gold led a sharp price rally of 46% from $682/oz to over $1,000/oz between October 2008 and February 2009.

Equity futures markets (US and Asian) and AUD are sliding off overnight highs amid the worst YoY exports performance in China since October 2009. The 3.1% drop (compared to expectations of a 3.7% gain) is the biggest miss in a year and the first negative print since January 2012 - making the second big miss in a row as the 'fake' trade data driven by the shadow-banking-arbitrage is unwound out of historical data.

China’s biggest private shipbuilder, China Rongsheng Heavy Industries Group, last week filed for a profit warning as it expects a loss in the first half of 2013. That was the good news. The bad news is that Rongsheng appealed for government aid last Friday and said it was cutting staff as it was delaying payments to suppliers to deal with tightened cash flows. It also called on its shareholders for financial help and said it was in talks with banks and other financial institutions to renew existing credit lines. In other words a complete liquidity collapse.