3.4.14 - Stock Market Is Setting Up For A Major Crash
Gold prices close lower as tensions in Ukraine ease. U.S. stocks rally, S&P closes at record high. Gold last traded at $1,337 an ounce. Silver at $21.22 an ounce.
The investment markets seem to be turning their attention away from the crisis in Ukraine for now.
The world powers seem focused on preventing the Ukrainian crisis from completely derailing the already fragile economic recovery. This desire was aided when Russian dictator Vladimir Putin ordered troops in the vicinity back into their barracks. This does not mean the crisis is over by any stretch, but it is at least interrupted.
So, now back to the reality.
Here's one harsh dose of that reality:
The stock market is in a bubble setting up for a major crash, with the Dow Jones Industrial Average likely to hit the 17,000 level within the next few weeks before plummeting to around 6,000 by 2016, author and market observer Harry S. Dent Jr. told CNBC on Monday.
"I think we will see another correction, crash, that is larger than the last one," said Dent, author of The Demographic Cliff, during an interview on Closing Bell. "I think this will be the most dangerous period in people's lives in investing."
Meanwhile, gold has been providing security and safety in 2014, having climbed 11% so far.
Global economic weakness, as well as geopolitical tensions, have prompted investors to show renewed interest in gold.
In addition to the crisis in Ukraine, there has been a less-publicized spat between China and Japan over long-disputed islands.
While such geopolitical tensions will no doubt continue to produce episodes in which gold's role as the "crisis commodity" comes to the fore, it is the underlying economic fundamentals that are producing strength in gold over the long-term, day-in, day-out.
Both the US and Chinese economies have been showing persistent signs of weakness. This has disturbed stock markets and prompted investors to diversify into alternatives, such as gold.
Perhaps most important in western markets is whether the U.S economy is still vulnerable. If, for example, the U.S. Fed taper is itself tapered, because unemployment remains stubbornly high and the economy is not seen as recovering fast enough, it would send a strong signal that recent stock market growth is vulnerable and may push more investors into gold.
Speaking of gold, we have yet another reminder it is alone the ultimate form of real money. This week bitcoin is in the news again.
Just one week after bitcoin's major exchange, Mt.Gox, went offline and then filed for bankruptcy, a bitcoin bank was forced to close after hackers stole 896 bitcoins, worth over $600,000.
The bitcoin bank Flexcoin posted a note on its site stating: "On March 2, 2014 Flexcoin was attacked and robbed of all coins in the hot wallet. ... As Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately." (The term "hot wallet" refers to bitcoins stored in an online wallet connected to the Internet)
Those looking for alternatives to man-made paper currencies would do well to remember that gold has been a trusted medium of exchange for over 5,000 years. It is an asset in its own right, not dependent on anyone's promises.
3.3.14 - Gold Prices Surge As Investors Flock To Safe Haven Assets
Gold prices surge as investors search for safe assets amid global turmoil. Dow slides by triple digits as tension in Ukraine grows. Gold last traded at $1,350 an ounce. Silver at $21.74 an ounce.
For many decades, gold has been known worldwide as the "crisis commodity" and with good reason.
Historically, gold has provided a safe haven for individuals and entire civilizations during times of geopolitical turmoil.
Right now, we are seeing gold perform its traditional role as a guardian of wealth when paper assets are suffering due to world crisis.
The world is on the precipice of a such a crisis as a result of Russian military movement into the Crimea (a region in Ukraine) and threats against the Ukrainian government and defense forces.
As a result of this unanticipated situation, the price of gold is sharply higher today and world stock markets are sharply lower.
In fact, gold has now closed above $1,350 per ounce, the highest close since October.
Meanwhile, all three major US stock markets fell hard today. The Dow was down 153 points, the S&P 500 was down nearly 14 points and the NASDAQ fell over 30 points.
US stocks took their cue from Europe and Asia. European stock markets in particular felt the impact of the possibility of a major war on Europe's doorstep.
The German DAX fell 333 points, the FTSE in the UK was down 101 points and the CAC 40 in Paris fell 117 points.
Japan and Hong Kong both fell steeply as well, whereas Shanghai was actually higher overnight. This isn't surprising given that China has publicly backed Russia's moves against Ukraine.
But no market was hit harder than Russia's, which fell 11% as foreign investors rushed for the exits.
The significance of this crisis cannot be overemphasized.
Speaking to CNN, Ian Bremmer of political risk firm Eurasia Group called the crisis "the most seismic geopolitical events since 9/11."
"The threat of war, the central government in Kiev losing control over eastern regions, fear of imminent default -- these are all unnerving messages for markets," IHS Global Insight's Lilit Gevorgyan told CNN.
"This uncertainty isn't likely to dissipate soon," Rob Drijkoningen, co-head of emerging-market debt at Neuberger Berman, told the Wall Street Journal.
It should be pointed out that even if the crisis in Ukraine had not surfaced, gold could have risen sharply today, as it has most of 2014. This is because gold still has strong fundamentals, including robust global demand unrelated to the geopolitical crisis.
This is reflected in the fact that hedge funds have raised bullish gold wagers to the highest in more than 14 months amid mounting concern that the U.S. economic recovery is weakening, a factor we have been pointing out for the entire first quarter.
“There are some major concerns about the erosion of the U.S. economy,” said Jeffrey Sica, who helps oversee more than $1 billion of assets as president of Sica Wealth Management in Morristown, New Jersey. “The devaluation of currencies will continue, and it’s going to further accelerate the upside appreciation of gold. As we see more trouble out of China and emerging markets, it’s going to become more of a safe-haven investment than it’s been in the past year and a half.”
2.28.14 - Investors Turn To Gold!
Gold prices end slightly lower but logged a monthly gain of 6.6%. U.S. stocks higher, S&P 500 notched its 48th record close in the past year. Gold last traded at $1,321 an ounce. Silver at $21.24 an ounce.
Investors are once again flocking to the safety of gold.
Last year the price of gold fell for the first time in over a decade. In 2014, the price of gold is rallying. It is up 11% so far this year and now trading at a 4-month high.
Investors are turning to gold because they have persistent concerns about a slowdown in the U.S. economy (despite Fed denials).
Also boosting demand for gold is weak economic data from China and the new political and economic turmoil in Ukraine.
"In general whether it's Ukraine, the U.S. economic data or worries about China, there seem to be a lot more reasons than there were six weeks ago for looking at gold," Nomura analyst Tyler Broda told Reuters.
A surging gold price is scary to some, especially big financial institutions who have large positions in paper assets. Perhaps that is why they have been attempting to manipulate the price of gold, according to a research paper by New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service.
Nevertheless, the free market always wins in the end and the free market is driven by economics. The trouble brewing in the US economy is one driving factor behind the surging price of gold. More evidence emerged today that the economy is not doing so well, despite what Fed Chair Janet Yellen may be telling Congress.
This morning, the federal government cut its figure of U.S. growth in the waning months of 2013, calling into question whether the economy is primed to accelerate in 2014 after years of a sluggish expansion.
The total value of all goods and services produced by the economy, known as gross domestic product, rose 2.4% in the 4th quarter of 2013. Initially the Department of Commerce had reported the U.S. economy grew 3.2%.
The reduced growth figure suggests the U.S. did not enter the new year with as much momentum as previously believed.
The report also casts doubt on whether the U.S. is ready to grow in 2014 at its fastest rate since the recession ended, as many private economists and the Federal Reserve believe.
It also calls into question whether we can trust government economic reports and statistics.
One legitimate activity of the federal government we depend on is common defense. But a new report from the Pentagon's Cyber Command indicates the US military is ill-prepared to defend America against the growing threat of cyber attacks, against both public and private infrastructure.
This is of concern to investors because the financial system and exchanges are prime targets for such attacks. All the more reason to own assets that don't only exist in cyberspace. Gold is real. It has value you can tangibly feel.
2.27.14 - Gold Prices Higher As Tension In Ukraine Grows
Gold prices end higher on growing political tension in Ukraine. U.S. jobless claims unexpectedly jump 14,000. Gold last traded at $1,331 an ounce. Silver at $21.31 an ounce.
All eyes seem to be focused on the crisis in Ukraine, which is even overshadowing today's scheduled testimony in Washington by Fed Chair Janet Yellen.
There are increasing signs of Russian military movements near the Ukraine, as Vladimir Putin has ordered Russian forces on alert. Russian fighter jets are patrolling along the border and Russia has reportedly granted shelter to Ukraine's fugitive President Yanukovych, who is now wanted on murder charges. Reports indicate the Russians have 150,000 troops in the vicinity.
There had been an interruption to the violence in Ukraine, but yesterday there were reports that heavily armed assailants seized governmental buildings in the Crimea, a semi-autonomous region in Ukraine.
The Obama administration issued a warning of sorts to Russia not to intervene. While this hasn't helped tensions, it is generally recognized that the US has virtually no options when it comes to backing up such warnings.
The events in Ukraine shook European stock markets overnight and sent gold higher in European trading. Stock markets in Germany, the United Kingdom and France were all sharply lower.
While keeping an eye on developments in Ukraine, investors will also be monitoring comments later from the Federal Reserve chair Janet Yellen to the Senate's Banking Committee. It will be interesting to see if Yellen continues the same Fed line that the economy is improving amid growing skepticism from private sector economists and a succession of disappointing economic reports.
It is unlikely Yellen will offer up any surprises and her testimony before the Senate is likely to closely resemble her previous testimony before the House on 11 February. It is therefore likely Yellen will dismiss and downplay recent disappointing economic data, attributing the weakness to temporary factors.
This may cheer the markets, but if the data keep coming in weak, sooner or later Yellen is going to look incompetent or dishonest, or both.
Some investors are learning a tough lesson about just what constitutes an alternative currency and what doesn't. Gold has served for 5,000 years as the ultimate form of real money. But lately, some investors have been attracted to the "Bitcoin" craze, in which a private, global entity has created a virtual global currency.
Now severe problems have struck.
Mt. Gox, the world's largest and most popular bitcoin online exchange, has evaporated into cyberspace's ether. The web site disappeared without warning and with no message. Even more ominously, Bitcoin has halted cash withdrawals after the departure of its CEO.
Reports indicate that $375 million worth of investors' bitcoins have disappeared, leaving the exchange insolvent and investors holding the bag.
This is no doubt a painful lesson for those who have been victimized.
It is always useful to remember that gold is an asset in its own right. It's not dependent on the functioning of some online exchange and it is not dependent on anyone's promises.
These interesting comments came from the global head of foreign exchange at Credit Agricole, Europe's third largest bank:
"The market hasn't quite fathomed the scale of annual Chinese buying just because of the wealth effect in China over the next coming years. I don’t think gold’s going to come back to $1,000, like many people are suggesting, because I’m seeing what’s happening in China."
Given that short positions by Exchange Traded Funds (ETFs) were one driving factor behind the decline in gold prices in 2013, this statement suggests that a repeat is not in the offing.
Finally, we are starting to see commodity price inflation in an unexpected area. Cattle futures have risen to a new record as the US cattle herd has plummeted to a 63-year low, while hog futures have hit a 34-month high due to a spreading virus that is killing piglets. Meat supplies are already starting to shrink and consumers are seeing rising prices at the supermarket. Whether these will be reflected in government inflation gauges, such as the Consumer Price Index, is, of course, anyone's guess.
2.26.14 - Rising Gold Prices Often A Warning Sign Of Trouble Ahead
Gold prices end lower on profit taking and chart consolidation. U.S. stocks, dollar higher on housing data. Gold last traded at $1,328 an ounce. Silver at $21.25 an ounce.
Gold is now off to its strongest start since 1983, largely because investors are worried about economic and financial dislocation from a variety of sources.
Rising gold prices are often an early warning sign of trouble ahead. Where might the trouble come from? Two sources are on the immediate horizon.
• A full blown crisis is brewing in the Ukraine. Today the country claimed it would back deposits in Ukrainian banks in the wake of 7% of all deposits being withdrawn after last week's violence. Such guarantees never seem to end well. The financial aspects of this crisis could get worse and the geopolitical aspects could also get MUCH worse if the Russians get involved. Russian leader Vladimir Putin has put Russian troops in the vicinity on alert.
• A faltering US economy. Signs have been emerging in the US that the economy is slowing down, despite the Fed insisting things are getting better. Consumer and investor confidence is faltering, the employment picture does not seem to be improving and a variety of economic statistics have been slowing down, if not outright declining.
Gold has a long and impressive record of warning of trouble ahead in the global economy. It has usually been right in the past. We ignore it at our peril.
If only all of us could be as lucky as one California couple who spotted the edge of an old can on a path they had hiked many times before. Poking at the can was the first step in uncovering a buried treasure of rare coins estimated to be worth $10 million. It was the first of five cans to be unearthed, each packed with gold coins.
Nearly all of the 1,427 coins found in the cans, dating from 1847 to 1894, were in uncirculated, mint condition.
2.25.14 - Economic Data Shows U.S. Economy Is Slowing
Gold prices end higher on weaker-than-expected economic data. U.S. stocks lower on housing data, lower U.S. consumer confidence. Gold last traded at $1,342 an ounce. Silver at $21.96 an ounce.
Economic forecasts as well as the real estate market both echo what has been brewing for a couple of months now: the US economy is slowing.
Consumer confidence is once again on the decline. The Conference Board reported this morning that its index of consumer attitudes fell to 78.1 from a downwardly revised 79.4 in January. Economists had expected the report to come back with a figure of 80.0. This is just the latest in a series of reports on consumer and investor confidence with negative numbers in recent weeks and months.
The real estate market, which had been robust in 2013, has been showing signs of a slowdown as well. The latest figures from the S&P/Case-Shiller composite index support the assertion. U.S. home prices ticked down 0.1% in December, declining for a second month, with 11 of 20 tracked cities posting drops.
“Gains are slowing from month-to-month and the strongest part of the recovery in home values may be over,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices. “The seasonally adjusted data also exhibit some softness and loss of momentum.”
Given the string of negative reports on the economy, it comes as no surprise that more private sector economists are pointing out that the Fed is out of touch. Economic data of late — jobs, housing, building permits, consumer spending and industrial production — have all been soft. And yet, the Federal Reserve tells us the economy is back.
2.24.14 - Gold Prices Soar As Geopolitical Concerns Grow
Gold prices hit their highest close in almost four months on expectations for weaker economic data. Stocks rally, U.S. dollar tumbles. Gold last traded at $1,338 an ounce. Silver at $22.05 an ounce.
Gold is poised to hit a fresh 4-month high today, based on positive fundamentals and technicals as well as new geopolitical concerns.
As we reported last week, the price of gold has held firmly above its 200-day moving average, creating a bullish technical scenario. And demand for gold worldwide is on the rise. World mints in the US, the UK, Austria and Australia are having trouble keeping up. China's appetite for gold is growing and India is in the process of reducing import restrictions that have held gold consumption down.
With violence in the streets and scores killed in political unrest in Ukraine, Russia could be drawn into a military conflict to intervene. Moreover, there is the possibility Ukraine could default on its sovereign debt. All this adds up to a complex situation that could have implications beyond the purely geopolitical and into the economic and financial realms. This is sparking safe haven demand for gold in Europe.
Domestically, two items reinforce the notion that the US economy is not healthy:
1. Growth in the U.S. services sector as well as the pace of hiring slowed in February. Financial data firm Markit said its "flash" or preliminary services sector purchasing managers index slipped to 52.7 in February from 56.7 in January. Service sector employers added staff at the slowest pace in almost a year.
2. The National Association for Business Economics reported this morning that business economists are almost equally divided over whether the Federal Reserve will pare back bond purchases at the current pace through year's end or take a small breather to let the economy recover further. This is the latest sign that not everyone is convinced the US economy is in a recovery, despite news reports to the contrary.
2.21.14 - Rare Coins Becoming More Popular For Investors
Gold prices end higher, scoring third weekly gain. U.S. home sales fall more than 5% in January. Gold last traded at $1,323 an ounce. Silver at $21.78 an ounce.
It has become very apparent during the first eight weeks of 2014 that investors are spooked by the economy and thus avoiding stocks.
It has also been widely reported they are turning to gold investments, as evidenced by gold's strong performance so far.
But there is another tangible asset market doing very well in the current economic and financial environment: rare coins.
This is nothing new. The rare coin market has been performing well for some time as investors seek diversification; as well as the satisfaction of owning beautiful, historically significant artifacts.
One of the diversification benefits of owning rare coins is outstanding performance. In fact, rare coins soared 248 percent in value over the past 10 years, according to the Luxury Investments Index, found in the Knight Frank 2013 Wealth Report.
Rare coins are also one of the most advantageous ways to own gold. Rare gold coins contain the intrinsic security of their gold content, combined with increased performance potential due to their scarcity. On top of that, rare gold coins are also works of art that provide a whole different satisfaction dimension with their ownership.
Speaking of gold, last year when the price of gold fell and paper gold investments were being dumped, demand for actual physical gold was healthy. Strong demand for precious metal coins was clearly seen in the United States. In 2013, the U.S. Mint sold 856,500 ounces of its latest American Gold Eagle coins, representing a 14 percent increase from the 753,000 ounces sold in 2012.
Those investors are likely to be rewarded handsomely according to one of America's preeminent technical analysts, Ralph Acampora, managing director at Altaira Wealth Management. Known as "The Godfather of Technical Analysis," Acampora sees upside ahead for gold, based on the charts. This is big news because Acampora hasn't always been a gold bull. His near-term target for gold is $1,384 per ounce, or about $60 higher than its current price. Acampora also says if gold surpasses that target, the market could get even more bullish.
2.20.14 - The Global Economy Is Struggling
Gold prices end slightly lower on weak data from China and Europe. U.S. dollar higher on emerging market concerns. Gold last traded at $1,316 an ounce. Silver at $21.68 an ounce.
Despite what you might be hearing from the so-called, mainstream financial press, there is mounting evidence the global economy is on shaky ground.
The first indication comes from yet another disappointing employment report in the US. Applications for unemployment benefits fell slightly in the second week of February but the level of claims appeared to signal little improvement in the U.S. labor market. Initial jobless claims dropped by 3,000 to a seasonally adjusted 336,000 in the seven days ended Feb. 15, the Labor Department reported this morning. The average of new claims over the past month, usually a more reliable gauge than the erratic weekly number, rose by 1,750 to 338,500.
Meanwhile, the government said continuing jobless claims increased by 37,000 to a seasonally adjusted 2.98 million in the week ended Feb. 8. Continuing claims are reported with a one-week delay and reflect the number of people already receiving benefits.
The second indication involves the Philadelphia Manufacturing Index, a widely watched gauge of industry activity in the US put out by the Philadelphia Federal Reserve Bank. This index has taken a big dive thus far in February, sinking to negative 6.3 from 9.4 in January. This is the weakest reading since February 2013 and the first negative reading since last May. Economists had expected a 7.3 reading. Any number below zero indicates contraction.
But indications of economic trouble are not limited to the US.
China's vast factory sector contracted over the past month and a widely anticipated acceleration in euro zone business activity failed to materialize, highlighting the fragile state of the global economy. A similar survey out of China reinforced concerns of a minor slowdown in the world's second biggest economy.
The flash Chinese Markit/HSBC PMI (a manufacturing activity index) fell to a seven-month low of 48.3 in February, although some analysts cautioned against reading too much into the report, noting it was a shorter-than-usual snapshot. Anything below 50 in this index indicates a contraction.
Markit's Eurozone Composite PMI, another manufacturing index, dipped to 52.7 indicating an increasingly fragile recovery. The overall index masked news France is lagging far behind its European peers, pouring cold water on hopes for a recovery gaining momentum in that country.
Is it any wonder investors around the world are increasingly turning to gold?
Stocks can't hold up indefinitely under the weight of poor underlying economic fundamentals. Gold, on the other hand, is an asset in its own right. It has historically moved independently of stocks and has proven a hedge against economic crisis and uncertainty, which erode the value of paper assets and currencies.
2.19.14 - Gold Shines So Far In 2014
Gold prices end slightly lower after Fed minutes. U.S. stocks fall on Fed fears and weak data. Gold last traded at $1,320 an ounce. Silver at $21.85 an ounce.
More and more attention is now being focused on gold's promising performance thus far in 2014.
The price of gold is up approximately 9% year to date. In contrast the stock market has disappointed investors so far in 2014 and ended January down for the month for the first time since 2008.
According to Ryan Detrick of Schaeffer’s Investment Research, the rally in gold is just getting started.
Detrick believes that gold has recaptured the critical 200 day moving average on its chart and, in laymen terms, simply “stopped going down.” That refusal for investors to use any opportunity to sell is a sign an asset is washed out to the downside. In other words, anyone who was possibly going to sell gold probably already has.
The 200-day moving average is a line many chart watchers use as a guide to predicting long-term trends.
According to Bespoke Investment Group, “Gold has been acting well all year, and the fact that it has now moved above its 200-day is another good sign.”
Meanwhile, trepidation in the stock market continues. Paul B. Farrell of Marketwatch delivered a history lesson of sorts for those worried about the stock market today. He points out that stock market crashes have almost always come with no warning. After the fact, many pundits claim to have predicted a crash, but the reality is the overwhelming majority of traders and investors get blindsided completely by crashes.
This is a compelling case for keeping gold in your diversified portfolio at all times, since gold has historically moved independently of the stock market and thus serves as a valuable hedge against turmoil in the stock market.
Yesterday we reported China has been unloading its holdings of US Treasuries at an alarming rate. Today, the New York Times reports that US Treasuries are not the only US financial asset foreign investors are avoiding. In 2013, foreign investors became net sellers of US stocks for the first time since 1992. This may explain why the stock market has started 2014 in such turbulence.
Finally, for the second time in as many days, there is a sign of a slowdown in the US real estate market. According to the Mortgage Bankers Association, applications for U.S. home mortgages fell in the latest week, with both purchase and refinancing applications down. This report comes one day after the National Association of Home Builders reported that U.S. homebuilder confidence suffered its largest one-month drop ever last month.
2.18.14 - China Losing Confidence In U.S. Dollar
Gold prices end higher as weaker-than-expected data underlined concerns about the momentum of the economic recovery. U.S. stocks edge lower on weak manufacturing data. Gold last traded at $1,324 an ounce. Silver at $21.90 an ounce.
China, the largest foreign holder of US Treasury securities, is reducing its stake in these securities, all while the country's appetite for gold is climbing.
Chinese holdings of US Treasuries fell by the most in two years during December, after China offloaded some $48 billion in US Treasury paper, bringing its total back to a level last seen in March 2013. This was the second largest sell-off of US Treasuries by China on record, the largest having occurred in December 2011.
Given that China continues to spend and invest cash elsewhere, this signals it does not have a great deal of confidence in the US, particularly the US dollar.
As we have reported, one asset the Chinese do have confidence in is gold. Chinese demand for gold rose 32% during 2013, bringing China ahead of India as the world's number one consumer of gold. China is looking extremely prescient now since gold was down for much of 2013 and has been rising strongly so far in 2014.
Gold is up over 9% year to date.
According to financial conglomerate UBS, US sentiment towards gold is changing.
Among the reasons UBS lists are:
• No expectations for a more aggressive Fed policy.
• Potential for the removal of the 80/20 rule in India (import restrictions in India during 2013 suppressed gold demand there).
• Gold's diversification with equities. Investor confidence in the stock market has been shaken thus far in 2013. Gold is seen as a hedge against a drop in the stock market.
• Persistent, increasing Chinese demand for gold.
• Constrained mine supply of new gold.
• Various inflationary or deflationary risks. Gold has been renowned as a hedge against inflation, but few investors are aware gold can also provide value in a deflationary environment.
Investors from Shanghai to New York are looking to gold, partially because they are worried about what is going on in the USA.
One particularly prominent investor, George Soros, the multi-billionaire hedge fund titan, is betting big on a decline in the US stock market going forward. In fact, the so-called Soros "put" position climbed 154% last quarter to $1.3 billion, a sign he is anticipating a major market downside.
One recent bright spot in an otherwise flat US economic picture could be turning down: homebuilding.
Sentiment among America's home builders fell dramatically in the last month. Confidence fell 10 points, according to the National Association of Home Builders' monthly sentiment index, from 56 to 46—the largest drop in the history of the survey, which started in 1985.
Fifty is the line between positive and negative sentiment. The index has not been below 50 since May.
2.14.14 - Investors Shifting Their Focus To Gold
Gold prices closed sharply higher on a combination of increased physical demand and a weaker U.S. dollar. U.S. stocks higher despite bad economic data. Gold last traded at $1,318 an ounce. Silver at $21.50 an ounce.
The investment world is increasingly shifting its focus to gold due to turmoil so far in 2014.
Gold has hit fresh three-month highs this morning and looks set to post its biggest weekly gain since October as more weak U.S. data raises fears about economic growth. Gold climbed for an eighth straight day - its longest winning streak since July 2011.
A variety of analysts are proclaiming the technical picture for gold is especially promising at this point:
"Gold has managed to break through – and hold above – some key resistance levels over the past few weeks. A rally above $1,308 per ounce could target $1,365," Victor Thianpiriya, commodity strategist at ANZ, who sees gold rising to $1,450. In addition to technical factors, sentiment among long and short-term investors appears to be turning more positive.
Gold has benefited from strong Chinese demand and India, which has historically been a major source of gold demand, looks poised to see an increase in demand as well as relaxation of import restrictions.
The uncertainty in the US economy isn't isolated. It also exists in Europe.
There is a new proposal by the European Commission which suggests "the savings of the European Union's 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis."
The EU is looking for ways to wean the 28-country bloc from its heavy reliance on bank financing and find other means of funding small companies, infrastructure projects and other investments.
This is essentially wealth confiscation. Investment is supposed to be voluntary. There is nothing voluntary about what the EC is suggesting.
This echoes measures taken in Cyprus last year, but would potentially be continent-wide. Such ideas and concepts are insidious and there is no guarantee these types of Statist ideas won't migrate here. This is all the more reason why investors need to safeguard their wealth with private, tangible holdings, such as rare gold coins.
2.13.14 - Disappoint Economic News Hits Markets
Gold prices end higher, marking the highest close on more than three months as economic data disappoints. U.S. stocks closed higher as investors focused on upbeat earnings. Gold last traded at $1,300 an ounce. Silver at $20.39 an ounce.
Disappointing economic and market news hit world stock markets overnight and this morning.
This is a pattern we have been seeing for some time now. While government officials keep telling us the economy is getting better, statistics suggest otherwise. And while Janet Yellen's promises to keep inflationist policies alive at the Fed cheered Wall Street for a while, reality seems to be setting in once again.
The number of Americans who applied to receive unemployment benefits rose last week; a sign the U.S. labor market is not healing as fast as many thought.
Initial jobless claims climbed by 8,000 to a seasonally adjusted 339,000 in the seven days ended Feb. 8, the Labor Department reported this morning. A survey of economists indicated they had expected claims to total 330,000.
On top of the disappointing employment news, sales at U.S. retailers fell sharply in January and December retail sales turned out to be worse than initially reported, offering more evidence the economy is stagnating.
According to the commerce department, sales dropped a seasonally adjusted 0.4% last month. Economists had expected a 0.1% decline.
And no one should be blaming the weather; sales at Internet stores, which should not be affected by the weather, fell 0.6% in January.
December’s originally reported 0.2% increase was cut to an outright decline of 0.1%.
Against this backdrop, world stock markets were mostly lower overnight; the stock markets in Shanghai, Hong Kong and Tokyo were all sharply lower and US markets are flat this morning.
The FTSE in London is also down, perhaps due to news that the Bank of England will test whether British banks could handle a bail in. A ‘stress test’ will examine whether banks will need a rescue package if prices correct again. Preparations have reportedly been put in place by international monetary and financial authorities, including the Bank of England for such a rescue package.
Such tests don't do much to encourage confidence.
One market that continues to perform well is gold. It is up again this morning, after reacting strongly to Janet Yellen's testimony Tuesday and Wednesday. And no nation is more bullish on gold than China.
We have already reported several times that China's demand for gold--both from the public and the government--is increasing. In fact, Chinese gold demand exceeded 1000 tons in 2013, making China the world's largest market for gold.
Now there is speculation that China's central bank is turning to gold--likely at the expense of the US dollar-- as its favored reserve asset to back up the nation's currency, the yuan.
The latest official figures show that China imported and produced far more gold in 2013 than its citizens bought. This chasm suggests the central bank was a buyer in the gold market last year in spite of its claims to the contrary.
Liu Xu, an analyst with Capital Futures in Beijing, said that companies in the jewellery market may have also built up their gold stocks andcommercial financial institutions, such as banks, have also been adding to their holdings.
A new report from Lombard Street Research indicates Chinese governmental authorities may possibly be moving in the direction of using gold in an attempt to make the yuan an international currency and escape what is seen as a "domineering dollar."
2.12.14 - Gold Prices Shine On Fed Statements
Gold prices extends streak, but fell just short of $1,300. U.S. stocks break four-day winning streak. Gold last traded at $1,295 an ounce. Silver at $20.34 an ounce.
In a recent interview, Federal Reserve Bank of St. Louis President James Bullard stated he was "still optimistic" about the outlook for the economy and predicted a growth of 3%, or more, this year. His statements gave stocks early gains today, which they struggled to maintain later in the day.
This came just one day after Federal Reserve Chairman Janet Yellen said she is planning on continuing the strategy of trimming stimulus in "measured steps." However, many criticized the new chairman for her inconsistent remarks regarding employment data. Yellen dismissed reports showing last month's hiring rose by only 113,000, significantly less that the 180,000 forecasted. Yellen expressed that she was "surprised" by these figures but felt there was "progress" in the labor market.
As many know, the unemployment rate doesn't always tell the whole story and may not be the best measure of the job market because the data only includes individuals who have searched for work within the last four weeks. In the latest report, the unemployment rate had dropped to 6.6% in January. However, a record 91-million adult Americans aren't looking for jobs, the highest level since 1978, and therefore are not counted in the unemployment rate. Not everyone in this category are discouraged workers, some of these individuals are students or stay-at-home parents who have chosen not to work.
The most recent Jobs Openings and Labor Turnover Survey, or the JOLTS report, showed December was the worst month for job creation since August 2012. Layoffs have hit a four month high and employers are hiring fewer workers than any month since June. This data shows the labor market may not be as strong as Yellen thought.
With all of this instability and inconsistency in the markets gold is the place for investors to seek safety and security. Today, gold reached a three-month high while Silver caps its best rally since 2011. This would extend gold's streak to a sixth straight session. Both metals rallied on speculation that U.S. stimulus will continue to boost the appeal of alternative assets. So far in 2014 gold has rallied 7.7% amid a slump in emerging-market currencies and rising physical demand.
2.11.14 - First Yellen Testimony Sends Mixed Signals
Gold prices climbed higher Tuesday, lifting the metal's prices more than 3% in five trading sessions. U.S. stocks extend 4-day winning streak after Yellen testimony. Gold last traded at $1,289 an ounce. Silver at $20.15 an ounce.
The Janet Yellen era at the Federal Reserve has commenced this morning as she testified before the US House of Representatives. Her testimony sent mixed signals. She claimed the Fed's policies would reflect a "great deal of continuity" from the previous Chairmanship of Ben Bernanke, widely believed to mean she plans on continuing to "taper" the Quantitative Easing program. But she also said "too many Americans remain unemployed."
This certainly suggest she will be leaning toward continued loose monetary policy in general.
And, if the employment picture continues to soften, who knows what her ideas may bring in terms of the future of tapering.
Once again, the latest report from the Labor Department on employment is not encouraging. The department reported this morning that job openings at U.S. workplaces ticked down to 3.99 million in December from 4.03 million in November. The number of separations, such as quits and layoffs, rose to 4.37 million in December from 4.28 million in November. Meanwhile, the total number of hires declined to 4.44 million from 4.53 million. The level of hires was almost 5 million when the recession began.
The stock market will be watching Janet Yellen very carefully, no doubt. But there is something else the stock market is watching right now: the charts of the Dow Jones Industrial Average. Those charts show eerie parallels between the stock market’s recent behavior and how it behaved right before the 1929 crash. The chart superimposes the market’s recent performance on top of a plot of its gyrations in 1928 and 1929 and the two lines look shockingly similar. If this correlation continues, the market faces a particularly rough period later this month and in early March.
In reaction to stock market worries, wealthy investors are avoiding stocks and moving into alternative investments, such as art. The markets for art and collectible cars are exploding. At the London auctions this week, Sotheby's and Christie's reported record results for their sales. For now, wealthy investors seem to want to buy assets they view as more secure—and certainly more fun and enjoyable to own. Rare coins are another asset class that bridges the gap between fine art and hard assets.
Elsewhere in the tangible asset markets, gold has been performing extremely well in 2014, in contrast with stocks. Gold is enjoying record demand from China and investment demand in the West is returning. One factor largely attributed to causing the decline in gold in 2013 is now absent from the market: ETFs. These funds sold off a great deal of physical gold in 2013. Those ETFs no longer have quantities of gold to sell. Meanwhile, investment demand for gold coins is soaring, as evidenced by reports from mints in the US, the UK, Austria and Australia.
2.8.14- Markets Await Yellen's First Testimony Before Congress
Gold prices scores highest close since mid-November as Chinese buyers return to the market. Financial markets on high alert for any new policy change from Yellen. Gold last traded at $1,274 an ounce. Silver at $20.11 an ounce.
All eyes will be on Congress and the Federal Reserve tomorrow (Tuesday) when new Fed Chair Janet Yellen delivers her first testimony before Congress, specifically the House Financial Services Committee.
Yellen is expected to get pressure from worried Democrats who are seeing that the US economy is not as robust as they hoped as mid-term elections draw near.
Yellen will be walking a tightrope to justify past and current Fed policies.
Two straight weak job reports have raised doubts about economists' predictions of growth in 2014. The global economy is showing signs of slowing—again. Manufacturing has slumped. Fewer people are signing contracts to buy homes. Global stock markets have sunk as anxiety has gripped developing nations.
The Congressional Budget Office foresees growth picking up through 2016, only to weaken starting in 2017. By the CBO's reckoning, the economy will soon slam into a demographic wall: The vast baby boom generation will retire.
At the same time the government may have to borrow more, raise taxes or cut spending to support Social Security and Medicare for those retirees.
Meanwhile, median real income for full-time male workers is lower now than it was more than 40 years ago.
The loose monetary policies and irresponsible fiscal policies that have devalued the US dollar have lowered our standard of living.
Gold stands as a secure vanguard against the demise of the dollar, with the price of gold rising so far in 2014, while stocks have languished. Demand for gold has been rising for some time. The China Gold Association announced this morning that China's gold consumption jumped 41 percent in 2013 to exceed 1,000 tons for the first time in history.
The growth in demand was broad-based. Gold consumption in China grew to 1,176.40 tons last year, with jewellery demand climbing 43 percent to 716.50 tons and bullion demand soaring 57 percent to 375.73 tons.
So far in 2014, investment demand in the West has followed suit, with world mints from Australia, Austria, the United Kingdom and the USA all reporting sharply rising demand for gold coins.
2.7.14 - Another Disappointing Employment Report Hits The Market
Gold prices end the week almost 2% higher after investors mulled this week's economic data. U.S. stocks higher on better-than-expected jobless claims. Gold last traded at $1,262 an ounce. Silver at $19.93 an ounce.
Yet another disappointing employment report was released by the US Labor Department this morning.
The U.S. economy added 113,000 jobs in January and the unemployment rate actually fell to 6.6%; but the details behind these numbers are disturbing.
The consensus forecast from economists had called for an increase of 190,000 jobs.
This second straight disappointing employment report suggests that unusually cold and snowy weather in the past two months is not the chief cause of a slowdown in job creation. In December, the economy added just 75,000 jobs, a meager gain many economists initially blamed on bad weather.
One worrisome sign is a sudden freeze in hiring in health care, one of the nation's fastest growing industries over the past two decades. Health-care providers cut jobs for the first time on record, raising questions about whether the rollout of Obamacare is roiling the industry.
Much of the decline in the unemployment rate is for a discouraging reason: Americans are dropping out of the labor force. As of January, only 63% of Americans over age 16 participated in the labor market -- meaning they either had a job or looked for one. Although there was a slight improvement in January, participation is still hovering around its lowest level since 1978.
Even the Federal Reserve is admitting the unemployment rate is misleading. "Using the narrow, widely reported unemployment rate alone could suggest a misleadingly optimistic state of affairs," Boston Fed President Eric Rosengren said in a prepared speech yesterday, ahead of today's report.
A number of economists look past the "main" unemployment rate to a different figure the Bureau of Labor Statistics calls "U-6," which it defines as, "total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers."
In other words, the unemployed, the underemployed and the discouraged -- a rate that still remains high. U-6 stands at 12.7%.
Two other factors could spell trouble for the US economy going forward as well: the weather and the trade deficit we reported yesterday.
Financial markets tend to overreact to abnormally warm or cold conditions, said David Woo, head of global rates and currencies at Bank of America Corp., in a Feb 4. report.
With Woo calculating January to be the coldest in the U.S. since 1988 and February set to stay chillier than usual, his growth prognosis isn't optimistic.
"We are concerned that the market may struggle to see through the ill effects of the current unusually cold winter," New York-based Woo said.
The larger-than-expected trade deficit for December will likely reduce estimates of growth in the October-December quarter. The government had initially estimated fourth-quarter growth at a 3.2 percent annual rate. But the bigger December gap could reduce that estimate to a 2.8 percent rate.
Demand seems to be a factor in pushing the price of gold higher so far in 2014.
The price of gold is higher by over 4 percent this year, clearly outperforming global stock markets. It's also outperforming other precious metals like silver, which is up 2.3 percent, and platinum, up 0.75 percent.
Demand for gold coins continues to climb. For instance, Australia's Perth Mint reports that sales of gold coins and minted bars increased 10 percent in January.
Barry Dawes, head of resources at Paradigm Securities, agrees that gold is heading to another bull market: "Supply-demand numbers for gold will push to a higher gold price." "Physical gold is disappearing off the market at a terrible rate. As soon as that really starts to hit I think gold goes through the roof," Jim Walker, CEO of Asianomics, told CNBC this week. "That's one of our biggest longs for the year."
2.6.14 - Bad News For Dollar Bulls
Gold prices end slightly higher as investors await January U.S. jobs data. U.S. stocks higher on better-than-expected jobless claims. Gold last traded at $1,257 an ounce. Silver at $19.93 an ounce.
A government trade report released this morning brought bad news for dollar bulls.
The trade deficit in the U.S. widened more than forecast in December as exports ended the year on a soft note. The Commerce Department said the trade gap increased 12 percent to $38.7 billion in December. Economists polled by Reuters had forecast the trade deficit widening to $36 billion in December. Exports showed a broad-based decline while imports edged up.
A widening trade deficit tends to be bearish for the dollar because a strong dollar suppresses exports and encourages imports. That's because a weak dollar makes US goods cheaper overseas and foreign goods more expensive here. So, when the trade deficit widens, it encourages the US government to continue policies which undermine the value of the dollar.
There was also sobering news from a private report on the jobs market. U.S. employers planned to cut payrolls by 45,107 jobs in January, up 47 percent from December's 30,683 planned layoffs, according to a report by Challenger, Gray & Christmas. The January cuts compared with 40,430 planned cuts in the year-earlier period, up 12 percent. This is yet the latest indicator that the employment market is not as strong as the mainstream financial media and the government would have us believe.
The stock market is mostly calm today, but one stock is attracting a lot of attention: Twitter. Shares of Twitter have dropped more than 20 percent so far this morning—a paper loss of $7.8 billion—after it reported sluggish user growth. The sell-off was a sign that the social network will have a tough time regaining its stature with advertisers, at least until it releases better numbers. How exactly that is supposed to happen, no one is certain.
This is not a good sign for the overall market as just recently Twitter was Wall Street's highest profile IPO in quite some time.
Speaking of trouble in the stock market, last week's emerging market sell-off was the final chirp of the canary in the coal mine, according to analyst Albert Edwards of Societe Generale, one of the world's largest banking conglomerates.
"The ongoing EM (emerging market) debacle will be less contained than sub-prime ultimately proved to be," he said in a research note released on Thursday, warning that the markets face being trapped in "a Freddie Kruger-like nightmare. The market has at last awoken from the dream it hoped would last forever."
One market that is doing very well is silver. Silver prices, which jumped the most in more than four months yesterday, may extend a rally today. In fact, silver is up in trading thus far.
Approximately $3 trillion has evaporated from the value of stocks globally so far in 2014. That global turmoil in stocks has reignited demand for precious metals. Sales of gold coins by the U.S. Mint rose 63 percent in January to the highest since April, while silver purchases almost tripled during the same month.
2.5.14 - World Stock Markets Resumed Their Decline
Gold prices slightly higher as U.S. equities traded mostly lower. U.S. stocks open lower on weak ADP report. Gold last traded at $1,256 an ounce. Silver at $19.80 an ounce.
World stock markets resumed their swoon overnight and this morning.
The US stock market is down across the board, with declines in the Dow, S&P 500 and the NASDAQ.
Overnight in Europe, the German and French markets both fell. In Britain, the market was flat--up less than two points. In Asia, the stock markets in Shanghai and Hong Kong were both sharply lower.
Both gold and silver are up solidly this morning. The US dollar is down against the Japanese yen and the British pound.
Part of the reason for the decline in the US stock market is the continuing worries about the US economy. Those worries were reinforced today with another disappointing employment report, this one from DP and Moody's Analytics. According to their report, private US companies created 175,000 new positions in January, lower than expected. Economists expected the ADP to report that private companies created 180,000 jobs in January, down from the downwardly revised 217,000 positions in December. Professional services declined sharply, adding just 49,000 jobs after averaging 65,000 over the past two months. Manufacturing jobs, meanwhile, fell by 12,000. Small business added the lowest monthly total of new jobs since August, 75,000.
The main method by which the US government has tried to stimulate the economy has been through loose monetary policy. In an editorial written for CNBC, Murray T. Holland, managing director of MHT Partners, says that those policies have failed in terms of economic stimulus, but did manage to boost the stock market. Since the Fed is now "tapering" its bond buying program, Holland warns investors that a "bigger market correction" is coming.
Holland also explains why the economy is showing signs of stagnation. He writes that research shows that economic growth slows when total consumer, business and government debt exceeds 275 percent of GDP. It is now 345 percent.
Holland also explains the economic effects of the 2013 tax increase of $275 billion are just beginning to creep into the economy. We will see the effects in 2014 and 2015. Taxes have a negative multiplier of 2 to 3, meaning they will slow the economy $550 billion to $825 billion.
The most apparent number in the debt component to which Mr. Holland refers is government debt. Government debt is growing exponentially. In fact, according to the latest numbers from the US Treasury Department, the US national debt has increased by $6.666 trillion since President Obama entered office. In other words, in the first 5 years of the Obama presidency, the US added more debt than it had accumulated in the first 227 years of our republic.
The impact is profound. Servicing that debt is a tremendous burden. In fact, according to new figures released by the Congressional Budget Office (CBO), the interest owed on the country's cumulative debt is set to nearly quadruple over the next decade. The Congressional Budget Office projects that interest will be $233 billion this year. By 2024, it will reach $880 billion. That means interest will account for the lion's share of the $1.1 trillion deficit projected for that year and will come close to what will be spent on Medicare. Interest costs will jump primarily because the underlying debt will remain very large and continue to grow.
The CBO projects that under current policies, public debt will reach $21 trillion -- or 79% of GDP -- by 2024. That would be its highest level in more than 75 years and would leave debt at nearly double its long-term average of 40% of GDP. Barring policy changes that better align spending with incoming revenue, the debt -- and the interest owed on it -- will continue to grow faster than the economy in subsequent decades. That's a trajectory the CBO describes as "unsustainable."
One former government official who played a major role in the last financial crisis was former Treasury Secretary Henry Paulson. Paulson worries that the nation is headed for another crisis because political leaders failed to learn critical lessons from the last one in 2008. In an exclusive interview with The Washington Times, Mr. Paulson said the most serious lapse may be Congress‘ failure to reform mortgage giants Fannie Mae and Freddie Mac in a way that would revive the private market for mortgages; which has all but disappeared since the crisis. He insisted that vigorous, bipartisan action is needed to ensure that housing never again turns from the American dream into an American nightmare for middle-class homeowners.
He points out the mortgage giants owned or guaranteed about half of the nation’s mortgages before the crisis but have dramatically increased their dominance ever since. Along with the Federal Housing Administration, they guarantee nearly every new mortgage in the U.S., which enables the government to essentially dictate the price and terms of home financing and suffocate any hope that the market will return to normal.
“That’s ultimately a recipe for disaster,” Paulson said.
Returning to the subject of monetary policy, Peter Schiff of EuroPacific Capital predicts that a faltering economy will eventually prompt the Federal Reserve to stop its tapering program and resume increasing its Quantitative Easing program. Schiff says he doesn't know when that is likely to occur, but when it does, he says, "gold's going to go straight up like a moonshot."
2.4.14 - U.S. Stock Market Takes Breather From Yesterday's Carnage
Gold prices end slightly lower on stronger U.S. dollar, equities rebound. U.S. stocks rebound after heavy sell-off. Gold last traded at $1,251 an ounce. Silver at $19.42 an ounce.
The turmoil in global stock markets persisted overnight, with bourses in China, Japan, Germany and the United Kingdom all sharply lower. For now, it appears the US market is taking a breather from the carnage, but there is still a wall of worry in the financial world.
Yesterday's hugely disappointing US manufacturing report has served as somewhat of a wake up call, prompting renewed worries about the US economy. This is on top of the global worries about a slowdown in China and emerging market nations.
Mitul Kotecha, an analyst at Crédit Agricole articulated the concerns that trouble investors right now:
"A combination of tapering, a confluence of country-specific emerging-market country concerns and weaker growth in China provide the backdrop for a volatile few weeks if not longer, ahead."
The Nikkei, Japanese stock market, is now down 14% for the year. The S&P 500 is down around 7%.
Despite the renewed concerns about the US economy, Richmond Federal Reserve President Jeffrey Lacker said that it was unlikely the Federal Reserve would stop "tapering" (cutting back on bond purchases). We shall have to see if Lacker's attitude is shared by others at the Fed if the economy continues to disappoint. New Fed Chair Janet Yellen is known as an inflationist who believes in the myth of easy monetary policy as an economic stimulant.
One factor that could definitely figure into Yellen's decision-making is a new report from the Congressional Budget Office (CBO) that Obamacare will push the equivalent of about 2 million workers out of the labor market by 2017.
That’s a major jump in the nonpartisan budget agency’s projections and it suggests the health care law’s incentives are driving businesses and people to choose government-sponsored benefits rather than work. That would amount to a double whammy for the financial world as it contributes to higher deficit spending and higher unemployment at the same time.
It's no wonder experts are urging investors to accumulate gold at current levels in anticipation of higher prices down the road.
2.3.14 - Stock Market Suffers Steep Decline
Gold prices end sharply higher on a weaker dollar and worries over emerging markets. U.S. stocks tumble on weaker-than-expected manufacturing data. Gold last traded at $1,259 an ounce. Silver at $19.41 an ounce.
Today is the first trading day of February and so far the US stock market is extending the losses it suffered during January with sharp declines in the Dow, S&P 500 and NASDAQ.
January's stock market performance was the steepest monthly decline since May of 2012.
A disappointing report on factory activity is contributing to today's decline.
U.S. manufacturing grew at a substantially slower pace in January as new order growth plunged by the most in 33 years, driving overall factory activity to an eight-month low, the Institute for Supply Management (ISM) said this morning.
This is but the latest example in a series of disappointing economic reports and the stock market appears to be paying attention finally, after being uncoupled from the underlying economy for most of 2013.
US stocks are certainly not alone in their troubles as of late. CNN/Money reports investors yanked more than $6.3 billion from emerging market equity funds last week, the largest outflow on record in dollar terms. Emerging markets have been hit this year by a perfect storm of rising interest rates in the U.S., fears of a slowdown in China, political turmoil and concerns emerging market economies haven't reformed fast enough to make growth sustainable.
Stock markets in Germany, the United Kingdom and France were also sharply lower overnight, as were Japanese and Chinese markets before them.
The dollar has sometimes served as a safe haven in past times of global uncertainty such as we are now experiencing, but that does not appear to be the case right now.
The dollar is mostly lower against foreign currencies.
With stocks and the dollar taking hits, it is no surprise the price of gold is sharply higher today.
Some technical analysts are now calling major support for gold and a bullish double bottom. The formation, which has two troughs at about the same level, is particularly reliable for chartists because it reflects investors' psychology by pinpointing the critical level where heavy selling has exhausted twice.
One reason global traders are not turning to the dollar may have something to do with comments from Treasury Secretary Jack Lew warning the US could start defaulting on the government's obligations "very soon" after hitting a limit on the national debt later this month. Lew said the federal government should hit the ceiling by the end of February unless Washington raises the nation's limit on public borrowing.
This has all the trappings of yet another political conflict in Washington that could impact the financial world.
Finally, we have a reminder there is still an economic and financial crisis bubbling under the surface in Europe. The German finance ministry reported yesterday it is preparing a third financial rescue package for Greece. The package would involve up to 20 billion euros. There are strings attached this time: The Germans are insisting on new austerity measures in return for the rescue. This could set up a political crisis in Greece as the country has a chronically high unemployment rate and declining Gross Domestic Product and many believe that austerity would exacerbate those problems.