08-May (Bloomberg) — Mainland China’s gold imports from Hong Kong surged more than sixfold in the first quarter, adding to signs that the country may displace India as the world’s largest consumer of the precious metal on an annual basis.

Imports from Hong Kong were 135,529 kilograms (135.53 metric tons) between January and March, from 19,729 kilograms in the year-earlier period, according to data from the Census and Statistics Department of the Hong Kong government. Shipments in March rose 59 percent from February, yesterday’s data showed.

Demand has climbed in the world’s second-largest economy as rising incomes and curbs on property speculation boosted purchases. China may become the biggest user annually this year, according to a forecast from the producer-funded World Gold Council. Last year, total Indian demand including for jewelry and investment was 933.4 tons to China’s 769.8 tons.

“We’re looking at another solid year for Chinese demand based on these early numbers,” said Nick Trevethan, senior commodities strategist at Australia & New Zealand Banking Group Ltd. “While it’s largely related to price, negative real interest rates should keep demand strong.”

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08-May (Der Spiegel) — Greece’s election has brought a political sea change to the country, after bitter voters hammered established parties for supporting austerity measures in exchange for international bailouts. As Athens veers towards political chaos, German editorialists predict hard times ahead.

Greece appears to be sinking ever further into a political quagmire after a first push to form a new coalition government failed on Monday, just one day after outraged voters chastened the parties that have supported the country’s bailout and austerity measures.

Sunday’s election results revealed clear anti-austerity sentiments from voters, who toppled the two main parties that have dominated Greek politics for some four decades, the conservative New Democracy and socialist PASOK. Instead, many Greeks voted for smaller, more extreme, parties that oppose the strict requirements levied by the European Union and International Monetary Fund in exchange for bailouts.

Observers believe there is little chance of any of the parties being able to put together a viable coalition government, meaning that new elections may become necessary.

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08-May (USAGOLD) — Gold dropped sharply in early NY trade as global markets welcome Greece back to the front-burner of the eurozone debt crisis with renewed risk aversion. The yellow metal fell through support at 1612.80, establishing a 17-week low. Stocks and commodities fell as well.

The realities are starting to sink-in In the wake of Sunday’s Greek elections. Now that Antonis Samaras and the New Democracy party failed to form a government, Alexis Tsipras and the anti-austerity, anti-bailout Syriza party gets a stab at it. Tsipras said today that Greeks voted against the “barbaric bailout,” and the result of the election make the bailout accord “null and void”. That was enough to get investors moving toward the exits, because if Syriza succeeds in forming a coalition, the first order of business may well be to renege on the bailout deals, hurdling Greece back toward a disorderly default.

While Spain, Portugal and Italy be breathing a collective sigh of relief that the spotlight is no-longer on them, Greece back on the brink of default significantly heightens contagion risks throughout the periphery. In fact, discussions about the possible breakup of the eurozone are on the rise once again. With one of the core members of the EU in a bit of turmoil itself as a result of its change in government, one can’t be entirely sure whom France might back if Greece does indeed try to renege on its commitments.

For now, it’s ‘risk-off’. While gold tends to suffer in initial deleveraging — courtesy of the proliferation of paper-gold in recent years — this is exactly the kind of environment where physical gold truly shines as a preserver of wealth. We will frequently see robust physical buying interest into sell-offs of gold derivatives.

08-May (MarketWatch) — The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date, though the move failed to prevent a sharp fall for the Tokyo equity market.

The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16.

In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday.

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PG View: In the US, the Fed can still elevate stocks by manipulating the bond market. In Japan, after decades of ZIRP and QE, a little more overt action is now required…but even that seems to have its limitations.

08-May (Bloomberg) — A Greek political party leader who has vowed to rip up the terms of Greece’s international bailout was handed the mandate to try and form a government after Antonis Samaras of New Democracy failed to forge an agreement.

“This is a great moment for the Left, a great responsibility for me,” Alexis Tsipras, whose Syriza party placed second in May 6 elections, told President Karolos Papoulias in Athens today. Tsipras aims to forge a coalition of “leftist” parties that would overturn current bailout policy.

Greece’s Parliament is split down the middle on whether to renege on the terms of the two bailout agreements negotiated since May 2010. With the risk increasing of instability in Greece, the epicenter of the debt crisis, policy makers in Europe urged Greek leaders to quickly agree on a new government.

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PG View: Not surprisingly, markets are on edge this morning. If Syriza succeeds in forming a government it may well be seen as a mandate to renege on the bailout deals, which would hurdle Greece back toward an uncontrolled default, while significantly amplifying contagion risks.

07-May (AP) — Several candidates opposed to austerity measures were making a strong showing Monday in early projections from Italy’s local elections – the first nationwide test for Premier Mario Monti since he was named to save Italy from its debt crisis.

Analysts were watching for signs of voter anger over Monti’s austerity measures and toward mainstream parties that have supported them since Monti took over from Silvio Berlusconi in November.

Candidates for mayor in Parma and in Genoa who galvanized discontent with mainstream politics appeared to gain enough votes to force a runoff, projections showed. And the popular mayor of Verona, whose Northern League party has strongly opposed a new housing tax, appeared headed to a first round victory.

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07-May (Bloomberg) — Francois Hollande, who defeated French President Nicolas Sarkozy to become the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity and more growth in the region.

“Europe is watching us,” he told supporters in Tulle, France, last night after he won about 52 percent of the vote. “Austerity isn’t inevitable. My mission now is to give European construction a growth dimension.”

Hollande inherits an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that makes France vulnerable to the financial crisis that has rocked the euro region the past two years. Sarkozy became the ninth euro leader to fall in that time and the first French president in more than 30 years to fail to win re-election.

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07-May (USAGOLD) — Despite the political changes sweeping Europe, the yellow metal remains largely nonplussed. The euro, which opened at a 4-month low, has spent the day backing and filling the gap that was left. Uncertainty seems to be the new world order.

So it seems Europeans are not fans of austerity. Not a big surprise really, austerity pretty much sucks. And so the pendulum is apparently swinging back toward government spending, where Europeans will once again realize they don’t like being broke and in debt either. Lather, rinse, repeat…out with the old government, in with the new. The ability of governments to maintain power, their wills to honor past promises or broadly advance fiscal agendas is suddenly massively in doubt.

While the Greek elections were a pretty clear rejection of austerity, German chancellor Angella Merkel was quick to point out to Athens that “It is of utmost importance that the programmes that we agreed on with Greece continue to be implemented. The process is a difficult one, but despite that it should go on.” Meanwhile a Credit Suisse economist said the election results were “one of the worst possible outcomes” because of the uncertainty that will result, suggesting that new elections could be in the offing as soon as next month.

With the US Presidential campaign now officially underway, similar debates will play out here as well. Most Americans are generally against government imposed austerity when specific programs are mentioned as potential targets, but I think all but perhaps the most ardent Keynesians recognize that a debt to GDP ratio of 107% is unsustainable. The uncertainty that springs from this has prompted many to self-impose austerity — they are spending less and saving more — which in turn hamstrings any kind of true recovery.

With the country pretty evenly divided on fiscal matters, it is likely that Congress will remain divided as well. So no matter who wins the Presidential race, legislative gridlock on issues of spending and taxation will persist, breeding more uncertainty yet. The continued absence of meaningful fiscal reform may well prompt the Fed to step into the breach once again with the large blunt tool of monetary stimulus.

• Canadian building permits +4.7% in Mar, well above market expectations of -5.0%, vs +7.6% in Feb.
• Switzerland unemployment rate (sa) a tick higher at 3.1% in Apr, after negative revision for Mar from 3.1% to 3.0%.
• Switzerland CPI +0.1% m/m in Apr, below expectations of +0.2%, vs +0.6% in Mar; -1.0% y/y.
• Germany manufacturing orders +2.2% m/m in Mar, well above expectations of +0.5%, vs upward revised 0.6% in Feb; -1.3% y/y.
• Taiwan CPI 1.44% y/y in Apr, vs 1.21% in Mar.
• Taiwan exports-CC -6.4% y/y in Apr, vs -3.2% in Mar.
• Australia retail trade +0.9% in Mar, vs upward revised +0.3% in Feb.
• Australia building approvals +7.4% in Mar, vs negative revised -8.8% in Feb.
• Indonesia GDP +6.3% y/y in Q1, vs +6.5% in Q4.

06-May (Financial Times) — Another spring, another sputtering American recovery. For the third year in a row, what many anticipated to be a return to robust growth is beginning to look like another summer of hibernation. Last Friday’s payroll numbers showed a 115,000 drop in joblessness, barely enough to match population growth. And the ratio of Americans seeking work continues to go in the wrong direction, which flatters the official unemployment number. It fell a decimal point to 8.1 per cent last month. If no one had dropped out of the labour market, the official rate would have risen.

None of this should be much of a surprise. There are plenty of external factors to blame – the crisis in the eurozone, the persistence of relatively high global oil prices and expectations of a slowdown in China and India. To a greater extent than before, the US economy is affected by what happens to demand elsewhere. US domestic spending power is no longer the prime mover in today’s global economy. That era is unlikely to return.

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07-May (New York Times) — Vladimir V. Putin reclaimed the Russian presidency under the gold vaulted ceiling of a Kremlin palace on Monday, as police attempted to stamp out a second day of opposition protests in the city, passing on orders to detain anyone wearing a white ribbon.

In a ceremony anchored less in words than the physical attributes of power, Mr. Putin’s motorcade glided soundlessly through a city that seemed emptied of people. Inside the Kremlin’s battlement, he then walked over a long red carpet through a series of large chambers until he reached one as lustrous and intricate as a jewel box.

There Mr. Putin took the oath of office for a third time, extending his status as Russia’s paramount leader to a total of 18 years. He has said he may run for a fourth six-year term after that, meaning he could legally remain in power until 2024.

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07-May (National Post) — France’s president-elect Francois Hollande was plunged straight into the European economic debate Monday, as doubts over his plans and turmoil in Greece threatened to tip the euro zone back into crisis.

The 57-year-old Socialist won power on Sunday, ousting France’s right-wing leader Nicolas Sarkozy, and is due to take office formally on May 15 before embarking on a packed calendar of major international summits.

First on his agenda will be Europe’s debt crisis, where he is on a collision course with fellow EU leaders over his plan to renegotiate the bloc’s fiscal pact which many credit with saving the euro zone from meltdown.

Hollande promised the cheering crowds that welcomed his election that he would reopen talks in order that the pact focus on growth rather than simply imposing deficit-cutting austerity rules, an idea opposed by Berlin.

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06-May (Bloomberg) — Chancellor Angela Merkel’s party had its worst result in more than half a century in the northern German state of Schleswig-Holstein after an election that put the Social Democrats within reach of forming a coalition.

The result, in which the weakness of Merkel’s federal coalition partner once more hobbled her party’s ability to form a government, sets the tone for a bigger contest on May 13 in North Rhine-Westphalia. While polls suggest the SPD, the main opposition party nationally, will retain Germany’s most populous state, Merkel won’t be swayed by the party’s success at regional level to heed its national calls to spend more to end Europe’s debt crisis, said Manfred Guellner of pollster Forsa.

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07-May (BusinessWeek) — Greece’s election, in which the two main parties failed to win a combined majority, raised the risk that the nation will exit the euro and prompted calls for policies to boost European economic growth.

Greece now faces a 50 percent to 75 percent likelihood of leaving the euro in the next year to 18 months, Citigroup Inc. economists Guillaume Menuet and Juergen Michels wrote in a report today. They’d previously estimated the risk of a euro exit at 50 percent.

“Every country can decide to leave the common euro area, of course Greece can as well,” Austrian Chancellor Werner Faymann told state radio ORF today. “You just have to know what it means — and the Greeks will have to consider that.”

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06-May (BBC) — Socialist Francois Hollande has won a clear victory in France’s presidential election.

Mr Hollande – who got an estimated 52% of votes in Sunday’s run-off – said the French had chosen “change”.

Admitting defeat, centre-right incumbent Nicolas Sarkozy wished “good luck” to Mr Hollande.

Analysts say the vote has wide implications for the whole eurozone. Mr Hollande has vowed to rework a deal on government debt in member countries.

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06-May (WSJ) — Greek voters look set to set to say a resounding ‘no’ to the tough austerity imposed by the European Union and the International Monetary Fund.

Early estimates from exit polls in Sunday’s elections show that only between 31% and 37% of the electorate backs the two mainstream parties that support the belt-tightening measures in return for bailout loans.

A veteran Socialist Pasok party official said: “It seems that we have a complete change of the political map in Greece for the first time in more than 30 years. Although the two main parties could still form a minority coalition government it will be seen as illegitimate because of their low popular support and in any case it won’t last long.

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06-May (Financial Times) — Millions of voters are casting their ballots in the second and final round of France’s presidential election with François Hollande favourite to win in what would be the first victory for a socialist candidate in 17 years.

The Hollande camp appears confident of winning and has already begun making preparations for a celebration in the Place de la Bastille in eastern Paris.

The final opinion polls of the campaign, putting Mr Hollande as low as 52 per cent of the vote, suggested the result could be the tightest in three decades. Nicolas Sarkozy, the centre-right incumbent, is still hoping for a stunning comeback.

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06-May (Financial Times) — Greeks are going to the polls in a general election that is expected to reveal widespread anger with the country’s political elite.

Fringe parties opposed to the harsh terms of a €174bn bailout by international lenders are expected to do well.

As they cast their ballots, several political leaders made last-minute appeals to voters to avoid backing anti-austerity parties, saying it was crucial to keep up the momentum of reform.

“Each of us is making a decision today not only on who will govern the country but also on its course in the next decades,” said Lucas Papademos, the outgoing technocrat premier, who steered Greece through a partial sovereign default this year.

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by Mohamed El-Erian
04-May (Financial Times) — Friday’s US jobs data sound a warning that should be heard well beyond economists and market watchers.

With just 115,000 new jobs in April, the US economy is not creating enough employment opportunities to make a dent in the 12.5m jobless Americans in the labour force, of which a stunning 5.1m are long-term unemployed. Moreover, the disappointing monthly number managed to fall short of analysts’ massively subdued consensus expectation of 160,000, highlighting yet again the unusual sluggishness of the labour market.

…And then there is the labor participation rate which measures the number of adults in the labor force. This declined yet again and, at 63.6 per cent, is at a level last seen in 1981. In addition to highlighting the secular headwinds to income and wealth generation, this makes a mockery of the published unemployment rate of 8.1 per cent — a number that would be over 10 per cent if discouraged Americans had not dropped out of the labour force in their millions over the last few years.

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04-May (Financial Times) — Here’s how to start an argument in Britain. Suggest that far from being inherently flawed, the euro is fixable and could succeed in the long run. Suggest Britain should even consider joining it at some point. This last idea is a proposition with which the majority of British people disagree, strongly. I know this because the think tank Policy Network has today published new polling that tells you that eight in ten British people believe Britain should never join the euro, in any circumstances, even if it costs Britain influence in Europe. I am going respectfully to disagree.

…the political will to preserve the currency bloc is intensely strong in continental Europe. Indeed the current crisis may well provoke the institutional and political innovation that was lacking in the eurozone’s design a decade ago.

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PG View: Even as Norway’s sovereign wealth fund slashes its exposure to Europe, there are those that still think the grand experiment will succeed.

(04-May (MarketWatch) — Take heart, gold traders!

While bullion’s listless behavior over the last couple of months is undeniably frustrating, a very robust wall of worry is being built. Eventually, gold will begin to climb it.

I emphasize “eventually” because it’s been two months since I first reported that gold market sentiment conditions had begun to improve. ( Read my Mar. 7 column, “Gold market sentiment finally improving.” )

Since then, of course, gold on balance has gone virtually nowhere, stuck instead in a relatively narrow trading range between $1,600 and $1,700 an ounce.

Gold traders’ increasing impatience has led even more of them to throw in the towel than before — which, in turn, is why contrarians are confident that gold’s next major move is most likely up.

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04-May (Financial Times) — Norway’s oil sovereign wealth fund has sold all its holdings of Irish and Portuguese government debt and reduced its ownership of Spanish and Italian bonds as part of a continuing protest over its forced participation in Greece’s debt restructuring.

The fund, which has more than $600bn of assets under management and owns 2 per cent of all European equities, said the eurozone still faced big problems and that the Greek debt deal had worsened matters.

“Predictability is important for a long-term investor and the euro area faces considerable structural and monetary challenges,” said Yngve Slyngstad, chief executive of Norges Bank Investment Management, the official name of the fund.

The comments are one of the most explicit warnings by a big-name investor of the negative consequences of the Greek debt restructuring on all of the eurozone’s government bond markets. It shows how many international investors are shunning the eurozone because of how it has managed the debt crisis.

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04-May (MarketWatch) — Gold futures edged higher Friday, vying to break a four-day losing streak after a pivotal U.S. jobs report proved disappointing.

Gold for June delivery added $4.20, or 0.3%, to $1,639.70 an ounce on the Comex division of the New York Mercantile Exchange. The move brought week-to-date losses to 1.5%.

The much-awaited jobs report left investors disappointed, with the Labor Department reporting creation of 115,000 jobs in April and a slight decline in the employment rate, mostly as people stopped looking for work.

Gold caught a slight bid from expectations of additional monetary stimulus, bolstered by the weak employment figures, as the metal is seen as a safe store of value and inflation hedge.

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04-May (USAGOLD) — Gold rebounded from overseas losses following a disappointing US nonfarm payrolls report. Payrolls rose by just 115k in April, well below market expectations of +163k. Nonetheless, the unemployment rate ticked lower to 8.1%, its lowest level in three years.

The reason behind the lower jobless rate is hardly cause for celebration. While there were a cumulative +53k in back-month revisions, a stunning 522k dropped out of the labor force in April. The latter pushed the labor force participation rate to a new 30-year low of 64.2%.

Grim news indeed, stirring fresh talk of QE3. This initially lifted both stocks and gold, but while shares were unable to sustain those gains, the yellow metal is proving to be more resilient.

Oil dropped below $100, reflecting Goldman Sachs summation of the jobs data: “One Consistent Message: Weak Growth”

More PMI misses in the eurozone — further evidence of a double-dip — weighed on the euro initially, but the single currency bounced back as the weaker than expected US jobs data took the wind out of the dollar’s sails. This is a critical weekend for Europe, with elections scheduled in France and Greece. The outcomes of both could have severely destabilizing affects on the EU, which remains in the throws of sovereign debt crisis and on the verge of recession.

• US Apr nonfarm payrolls +115k, well below expectations of +163k, vs upward revised 154k in Mar; jobless rate ticks lower to 8.1%.
• US Monster.com jobs index +3 to 146 in Apr; +1% y/y.
• Eurozone Markit PMI – Composite revised down to 46.7 in Apr, vs 47.4 preliminary print.
• Eurozone Markit PMI – Services revised down to 46.9 in Apr, vs 47.9 preliminary print.
• Italy Markit PMI – Services falls to 42.3 in Apr, below expectations of 43.9, vs 44.3 in Mar.
• France Markit PMI – Services revised down to 45.2 in Apr, vs 46.4 preliminary print.
• Germany Markit PMI – Services revised down to 52.2 in Apr, vs 52.6 preliminary print.
• Switzerland retail sales (real) +4.2% y/y in Mar, well above expectations of -0.5%, vs +0.8% in Feb.
• Spain unemployment claims change -6.6k in Apr, vs +38.8k in Mar.
• Japan markets closed for Greenery Day.

04-May (ZeroHedge) — The comedy continues: the April “Not in labor force” seasonally adjusted print: 88,419,000. And yet, the maximum reading permitted by St Louis Fed Not in Labor Force (LNS15000000) graph: 88,000,000. The data has now officially dropped off the chart. No further commentary necessary.

03-May (Reuters) — ZeroHedge points out that the amount of U.S. debt outstanding has just surpassed the latest reading of our gross domestic product:

There is nothing quite like a $70 billion debt auction settlement at the last day of a month to bring total US debt to a record $15.692 trillion, which happens to be just $600 billion shy of the $16.394 trillion debt ceiling … And now that we know what Q1 GDP was at the end of Q1, or namely $15.462 trillion, it is simply math to divine that today alone total US/debt to GDP rose by 50 bps to a mindboggling 101.5%.

Now there is a whole school of thought, which counts New York Times columnist Paul Krugman among its leaders, that says that despite the amount of debt the federal government has incurred, more government spending and debt are needed given the stagnant state of the economy. Krugman elaborated on this idea in a recent interview with Julian Brookes of Rolling Stone:

A lot of people find emotionally unacceptable the idea that economic suffering on this scale could have a relatively trivial cause. But this has happened again and again through history. And it could be fixed fairly easily, by having government step in and spend.

The U.S. economy sits on a knife’s edge of slowing growth coupled with increasingly heavy debt loads.

…But propping up the entire economy by issuing more debt can’t be sustained for much longer. The U.S. has entered the twilight zone. Rushing headlong into the darkness is a risky approach.

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