Ukraine

• Investors Shift Money Out of China (WSJ)
• Rajoy Risks Riling ECB in Bid to Avoid Union Ire (Bloomberg)
• Romney-Ryan See Fed QE as Inflation Risk Amid Subdued Prices (Bloomberg)
• Spanish savers offered haircut then money back (FT)
• Must wipe all traces of illegality and settle for $25,000: Standard Chartered Faces Fed Probes After N.Y. Deal (BBG)
• Greece debt report backs cuts plan (FT)
• Greece seeks two-year austerity extension (FT)
• Brevan Howard Looks To U.S. To Raise Money For Currency Fund (Bloomberg)
• Can he please stop buying gold? Paulson, Soros Add Gold as Price Declines Most Since 2008 (Bloomberg)
• BOE Drops Reference to Rate Cut as It Considers Policy Options (Bloomberg)
• EU Banking Plans Asks ECB to Share Power, Documents Show (Bloomberg)

Seventeen months after the earthquake and tsunami that destroyed the Tokyo Electric Power Company’s six–reactor complex at its Fukushima Daiichi, discussions continue about the possible effects of the radiation “dusting” the prefecture’s inhabitants received, and their consequences. Far outside most media coverage, 2012 is shaping up to be the media battleground between the massed proponents of the ongoing ‘safety’ of nuclear power, as opposed to a motley coalition of environmentalists, renegade nuclear scientists and anti-nuclear opponents, largely bereft of media contact. There is an involuntary irradiated “test” Fukushima group monitored since March 2011 displaying disturbing health abnormalities that may ultimately decide the debate, should the global media report it, forcing governments to debate its consequences. The children of Fukushima.

No doubt, Eastern Europe is a part of the world where people are accustomed to being abused by politicians. After decades of Soviet Rule, the cultures in places like Ukraine, Moldova, Azerbaijan, Belarus, etc. have been inculcated with a strong mistrust of government. All government. One obvious sign of this is how little confidence people have in their own national currencies. Here in Ukraine, for example, people who have any level of wealth whatsoever hold hard currency– dollars and euros, rather than the local hryvna. (Naturally, their relative confidence in dollars and euros is misplaced, though I was pleased to see that gold is starting to penetrate the cultural psyche here.) They even have a funny nickname for these regional currencies that get inflated and devalued by corrupt central bankers and politicians– rabbits… because they grow and multiply in such huge numbers so quickly. As two different economics students this weekend told me, ‘we are starting to look at the US dollar in the same way…’ I guess that makes the euro a dodo bird.

In the second part of our five-part series on The Olympics (Part 1 here) we ponder the impossible to predict - the medal count. As Goldman notes: Economists like to think that the toolkit of their profession helps them explain many things or, as some would claim, everything that is interesting about human behavior. In the context of the forthcoming Olympic Games in London, therefore, the key question is whether economic variables can help explain and predict success at the Olympics itself. At one level, this seems like a daft question even to consider. It is hard to imagine that economic variables could even begin to capture the kind of individual skill, mental determination and hunger that drive athletes to perform feats of unimaginable virtuosity that is the stuff of Olympic legends. But at the level of a country, it may be possible to identify the ingredients that unlock success at the Games. As British Paralympian Tim Hollingsworth explains: "...when you create a world class environment you are far more likely to create world class athletes." What is a 'world class environment' and how do we measure it across countries? Luckily, we have an answer in the GS Growth Environment Scores (GES), a broad measure of growth conditions across countries - and, indeed, this is what we find: gold does go where the growth environment is superior. The forecast leaves USA, China, and Great Britain battling it out for 'Most Golds' and USA leading China overall - but remember "the most important thing in the Olympic Games is not winning but taking part."

This week may very well go down as 'connect the dots' week. Things have been moving so quickly, so let's step back briefly and review the big picture from the week's events. When you connect the dots, the next steps lead to what may soon be regarded as an obvious conclusion: the system, as it exists right now, is crumbling. No amount of self-delusion can make this go away. Rational thinking and measured action, on the other hand, can make the consequences go away... turning people from victims into spectators of the greatest bubble burst in modern times.

Turkey raised its reported gold holdings by another 2% in the month of May. Turkey’s gold holding rose by 5.7 tonnes in May to total 245 tonnes, International Monetary Fund data showed, making it the latest in a string of countries to increase gold bullion reserves this year. Turkey has allowed banks to hold more of their reserves in gold to provide extra liquidity. The central bank this month raised the proportion of reserve requirements that can be held in foreign exchange to 50 percent from 45 percent, while the limit for gold was increased to 25 percent from 20 percent. The changes will add as much as $2.2 billion to gold reserves. Gold accounts for about 9.1 percent of Russia’s total reserves, 5.1 percent of Ukraine’s and 15 percent of Kazakhstan’s, according to the World Gold Council. That compares with more than 70 percent for the U.S. and Germany, the biggest bullion holders, according to Bloomberg figures. Kazakhstan plans to raise the amount of gold it holds as part of its reserves to 20 percent, Bisengaly Tadzhiyakov, deputy chairman of the country’s central bank, said earlier this month.

XAU/USD Currency Chart – (Bloomberg)

Gold dipped today despite Wall Street hopes that the US Fed will embark on more QE. As we have said for some time QE3, or a new term for electronic and paper money creation, is a certainty and this will lead to inflation hedging and safe haven demand for gold. 

All you need to know.

What's the difference between today's global finance system and a Ponzi scheme? This is the question that a 56-year-old veteran Russian financial scammer has been asking his victims. As Bloomberg points out, chillingly, he almost has a point. Sergei Mavrodi is one of the most infamous names in Russia's recent history. Back in February 1994, amid the turmoil of the country's transition to a market economy, the mathematician organized a Ponzi scheme called MMM. Now he's back with an even more audacious endeavor: the honest scam. Last year, he announced the new project, MMM-2011, by stating boldly that it would be another Ponzi scheme. Depositors would be paid solely from funds invested by other depositors. There would be no attempt to generate income in any other way. This, he said, was perfectly all right, and no different than the way some of the largest institutions in global finance operated, from the Russian pension fund to the U.S. Federal Reserve. Perhaps most notably, Bloomberg reports his perspective on "What is money?" he wrote. "Nothing! Nihil. A phantom. … It is backed by nothing at all and printed by the masters in any quantity, at will."

All you need to read.

Here we go again. Back in July 2011 we wrote an article entitled "The Real Banking Crisis" where we discussed the increasing instability of the Eurozone banks suffering from depositor bank runs. Since that time (and two LTRO infusions and numerous bailouts later), Eurozone banks, as represented by the Euro Stoxx Banks Index, have fallen more than 50% from their July 2011 levels and are now in the midst of yet another breakdown led by the abysmal situation currently unfolding in Greece and Spain.... Although the last eight months have not played out the way we would have expected for gold, they have played out the way we envisioned for the banks. The question now is how long this can go on for, and how long gold can remain under pressure in a banking crisis that has the potential to spread beyond Greece and Spain? So much now rests on the policy responses fashioned by the US Fed and ECB, and just as much also rests on what's left of European citizens' confidence in their local banking institutions. Neither of these things can be precisely measured or predicted, but we continue to firmly believe that depositors in Greece and Spain will choose gold over drachmas or pesetas if they have the foresight and are given the freedom to act accordingly. The number one reason we have always believed gold should be owned, and why we believe it will go higher, is people's growing distrust of the banking system - and we are now there. We will wait and see how the summer develops, and keep our attention firmly focused of the second phase of the bank run now spreading across southern Europe.

All you need to read and some more.

All yu need to read.

Gold’s London AM fix this morning was USD 1,558.50, EUR 1,239.27, and GBP 993.62 per ounce. Yesterday's AM fix this morning was USD 1,555.00, EUR 1,229.44, and GBP 989.56 per ounce.
Gold fell $5.60 or 0.36% in New York yesterday and closed at $1,561.20/oz. Gold has been trading sideways in Asia and was slightly lower in Europe prior to buying which saw gold rise to about the close in New York yesterday. 

All you need to read.