Investors cut holdings in bullion-backed exchange-traded products to the lowest since 2009 as surging stock markets from the U.S. to China hurt demand and prospects for rising U.S. interest rates boosted the dollar.
The assets contracted 5.45 metric tons, or 0.3 percent, to 1,594.08 tons as of Tuesday, according to data compiled by Bloomberg. The holdings slumped 39 percent since reaching a record 2,632.52 tons in December 2012, shrinking by 33 percent in 2013 and a further 9.3 percent last year.
World equities surged in 2015 as U.S. stocks reached a record and the main stock gauge in China more than doubled in 12 months. The Federal Reserve has signaled it expects U.S. growth to pick up after a contraction in the first quarter and, while unlikely to raise interest rates this month, it's left the door open to tightening later this year. Higher rates curb gold's allure because it usually gives returns only by price gains
"You're seeing some significant, excess returns from U.S. stock markets and China's stock market as well," Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group Ltd. in Singapore, said before the data was released. "That's not positive for gold demand."
Gold Weekly Chart
Good Timin'
As I have commented before, sentiment is not a timing indicator. Bad sentiment can always get worse.
The good news is gold has been holding a steady bottom for nearly two years as investors dump it chasing insanely priced equities and junk bonds.
The precious metals slump will reverse. I just cannot say when.
What you do not want to see is bullish sentiment in the face of declining prices, something I eventually expect to see with equities and junk bonds. We were there in 2000, 2007, and it's going to happen again.
Investment Philosophy
Buy assets when no one loves, sell then when everyone loves them.
Buy gold and silver now, and sit on it. Both are very much out of favor.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
It's no secret that politicians in general are a self-serving lot, primarily concerned about doing whatever it takes to get reelected. Taxpayers be damned in the process.
As usual, Illinois politicians lead the way in brazen graft on such manners as excerpts from Illinoisans Suffer, Politicians Get Paid by Jeffrey Schwab, attorney for the Illinois Policy Institute shows.
Illinois state lawmakers failed to pass a balanced budget for fiscal year 2016 by May 31, and will now be called in for a continuous session in an attempt to pass a budget before the fiscal year starts on July 1. That means the budget will now require a three-fifths majority vote in each chamber of the Illinois General Assembly to pass.
If the General Assembly fails to pass a budget for fiscal year 2016, funds would not be appropriated – and could not be spent – for a wide variety of items for which it makes appropriations on an annual basis, starting July 1, including money going to education, the Department of Corrections, state police, court systems, the Department of Children and Family Services, and the Department of Human Rights.
But not all state spending would stop – funding for some programs and operations is allocated through what's called a "continuing appropriation," which continues each year automatically. Last year, House Speaker Mike Madigan and Senate President John Cullerton worked together to introduce and pass a law ensuring legislator salaries and operating expenses were funded on a continuing basis. [See Illinois General Assembly exempts itself from spending cuts, appropriations process]
Now, the only way for money to be appropriated for the fiscal year starting July 1 is by a law passed by three-fifths of the General Assembly.
The people of Illinois deserve a balanced state budget that addresses the fiscal problems facing this state without further crippling the economy with burdensome tax increases. They also deserve to know what will happen if the General Assembly fails to do so in time.
Jeffrey Schwab Staff Attorney, Liberty Justice Center
Illinois #1 in Greed, Graft, Taxing Bodies
When it comes to greed, graft, taxing bodies, and former governors put in jail, no state can touch Illinois.
It's very seldom that I agree with Bernanke on anything. He is wrong about the savings glut, about the cause of income inequality, about deflation, and countless other things.
Bernanke never admitted the Fed's role in creating the housing bubble, and he does not see the new bubbles that have formed.
Yet today, Bernanke stated many things in a cohesive manner that I happen to agree with.
Beijing was pushed into launching the Asian Infrastructure Investment Bank by US lawmakers' refusal to give China greater clout in existing multilateral institutions, Ben Bernanke has said.
"The US Congress is largely at fault for all that's happening," the former chairman of the Federal Reserve said in Hong Kong on Tuesday.
America's legislature blocked a 2010 International Monetary Fund agreement to shift 6 per cent of quota — and voting rights — to emerging economies, which Mr Bernanke believes would have "better reflected the increasing role of China" and other nations.
"The US Congress has not approved it. They should, they haven't," Mr Bernanke said. "So I understand why other countries say, 'well let's take our marbles and go home'."
The AIIB, which will be capitalised at $100bn, now has 57 members including most big European economies.
However, the former Fed chairman played down the practical implications of the AIIB, saying the bank was largely symbolic.
Mr Bernanke also said too much attention was being focused on the internationalization of the renminbi, which was as much a matter of "national prestige" as of practical economic value. In reality, he said, the Chinese currency's share of global reserves was "very tiny" and even its share of trade settlement was "modest".
China should continue gradual steps to open up its capital account, to deepen its bond markets and to allow a bigger role for the private sector, Mr Bernanke advised.
These were all preconditions to make the renminbi a reserve currency, he said, but they were more important as a means of improving capital allocation. The ultimate goal, he said, was to shift China's economic model from one dominated by heavy industry and investment to one in which the consumer and the service industry played a much bigger role.
Agreements
US pushed China into launching AIIB
Bank largely symbolic [so it doesn't much matter anyway]
Too much attention on renminbi
China needs to open up capital accounts and bond markets as precondition to becoming [major] reserve currency
China needs to shift from heavy industry and investment to service [rebalance]
Internationalization of the renminbi is a matter of "national prestige"
That's a lot of agreements!
Point six is precisely applicable to China making the case for including the yuan in the IMF's SDR reserve currency basket.
Battle Over Symbolism
In reference to AIIB, former US Treasury secretary, Larry Summers Wrote "this may be remembered as the moment the United States lost its role as the underwriter of the global economic system."
I think it's a battle over symbolism.
The US pressured the UK, Australia, and numerous other countries to not join, but 57 countries did anyway.
The Asian Infrastructure Investment Bank (AIIB) is an international financial institution proposed by the government of China. The purpose of the multilateral development bank is to provide finance to infrastructure projects in the Asia region.
As of April 15, 2015, almost all Asian countries and most major countries outside Asia had joined the AIIB, except the US, Japan (which dominated the ADB) and Canada. North Korea's and Taiwan's applications for Prospective Founding Member (PFM) were rejected.
U.S. pressure allegedly tried to keep Australia and South Korea from signing up as founding members, despite the fact that they expressed an interest in it. However, both Australia and South Korea have officially applied to join the bank in late March 2015, ignoring objections by the United States.
In early March 2015, the United Kingdom's Chancellor of the Exchequer, George Osborne, announced that Britain had decided to apply to join the Chinese-led Asian Infrastructure Investment Bank, becoming the first major Western country to do so. The announcement was criticised by the Obama Administration in the United States. A US government official told the Financial Times, "We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power."
In a self-serving if not downright idiotic statement, a US official claimed "Large economies can have more influence by staying on the outside and trying to shape the standards it adopts than by getting on the inside at a time when they can have no confidence that China will not retain veto powers."
I do not believe it's possible to ever have more influence on the outside than in. And certainly had the US, UK, other European nations, and Australia all gotten together on the inside, the position of the US is downright idiotic.
"We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power."
What about constant accommodation of a waning power?
The bank itself may not matter much, but the fact major nations are willing to tell Obama to go to hell does.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Not only were Factory Orders down for the eighth time in nine months, last month's rise in core capital goods was revised away.
Chalk up another miss for economists. The Bloomberg Consensus estimate was -0.1% in a range of -0.6 to +1.5% with the actual report at -0.4%.
Factory orders fell 0.4 percent in April for the 8th decline in 9 months, a depressing streak interrupted only by March's revised gain of 2.2 percent, a gain inflated by a monthly swing higher for civilian aircraft. There are significant downward revisions to the durable goods side of the report that was first published last week, with durables orders now down 1.0 percent vs an initial decline of 0.5 percent. Capital goods in that report looked strong, but not with today's revision with orders for non-defense capital goods sinking 0.3 percent vs an initial and very strong gain of 1.0 percent.
Ex-transportation, orders are unchanged, well down from the 0.5 percent gain in the durable goods report. Nondurable goods are a positive offset in today's report, up 0.2 percent and reflecting strength for chemical products.
Outside of new orders, data show no change for shipments and a 0.1 percent dip for unfilled orders, both very weak. The lack of punch is putting pressure on inventory levels where the inventory-to-shipments ratio rose to 1.35 from 1.34 in March.
The downward revision to core capital goods orders is a setback, pointing to much less business optimism than first reported. The factory sector did not get any lift at all coming out of the first quarter, reflecting weak exports and trouble in the energy sector. Manufacturing employment has understandably been very soft with the next update part of Friday's employment report.
Census Report
Diving into the Census Report, for April vs. March (seasonally adjusted) we find new orders look like this:
All Manufacturing: -0.4%
Excluding Transportation: +0.0%
Excluding Defense: +0.0%
With unfilled orders -1.1%
Durable Goods: -1.0%
Primary Metals +0.9 %
Fabricated Metals +1.0%
Machinery +0.9%
Computers and Electrical Products -4.0%
Electrical Equipment -1.0%
Transportation -2.4
Furniture -1.9%
Nondurable Goods: +0.2
Inventories
Inventories of manufactured durable goods in April, up twenty-four of the last twenty-five months, increased $0.8 billion or 0.2 percent to $401.6 billion, unchanged from the previously published increase. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a virtually unchanged March increase.
Inventories of manufactured nondurable goods, down eleven consecutive months, decreased $0.2 billion or 0.1 percent to $247.4 billion. This followed a 0.3 percent March decrease. Chemical products, down six consecutive months, drove the decrease, $0.4 billion or 0.4 percent to $81.5 billion.
Transitory Weakness Continues
Another weak month and another miss by economists. The allegedly transitory weakness continues for 9 months.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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