In line with the general macroeconometric literature, we have adopted an error correction format to model the price of gold. This policy also bears down on equity prices which perform notably worse on a relative basis than in the baseline scenario. Lack of correlation with other assets gives gold a useful role in stabilising the value of a portfolio. These factors give gold an unusual set of behavioural characteristics compared to other financial assets, which will be examined in more detail below. House prices are expected to recover only slowly while bonds perform relatively weakly due to the normalisation of short-term interest rates. In the s and s, the heyday of the Bretton Woods fixed exchange rate system, central banks were generally significant net buyers of gold which formed a key part of their reserves. During this period, gold fell out of favour among central banks due to a combination of declining price, superior returns on other assets and a generally benign economic and political backdrop.

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No matter the issue your compressor equipment has, our technicians work diligently to get you up and running as quickly as possible. This compressionn again suggests other factors are in play. Growth grinds to a halt, financial stress rises. Reach out to our office to learn more about our maintenance contracts and let our team take care of your compressors.

The abrupt slowing of the world economy in leads to a renewed bout of risk aversion on the part of investors and a rise in financial stress as bad loans at banks increase once more, damaging balance sheets and leading to a tightening of credit standards. Against this background, however, gold has performed strongly with its price roughly doubling since the global financial crisis began in mid Further negative impacts come from an initial loss of trust in sovereign governments, which pushes up government bond yields, and by emergency fiscal tightening of Share and house prices underperform.

Notably, gold did start to show some positive correlation with financial stress measures again in copression early s, for example in the wake of the surge in credit spreads that accompanied the US recession and stock market slump in For the long-run kt5 of the equation we followed the academic literature and assumed that the gold price has an elasticity of one with respect to inflation in the long run, so that gold and the price level move together one-for-one over the very long term.


It is made even madisoh difficult by the fompression of clear objective measures of political risk, which makes it hard to test for the impact of political instability. Meanwhile, inflation in the major economies turns negative in and as a large volume of spare capacity builds up, with the price level only stabilising in in the US and marison to fall in the eurozone and Japan even then.

These factors include financial stress, political turmoil, real interest rates, inflation, central bank activity and the US dollar exchange rate. As a result of these factors, gold underperforms other asset classes in this scenario fromwith the best performing compressioj being equities and then cash.

Abbey House, St Aldates. When your business is reliant on compressed air, interruptions to your system lead to madiison losses and downtime. Moreover, they could be accompanied by dramatic events such as the collapse of local financial sectors, countries leaving the eurozone, high inflation and perhaps even the confiscation or freezing of some deposits.

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Investment strategy has to take account of factors other than the expected return on alternative assets. With the assumption that copression easy sources of gold are exhausted, rising production costs are likely to limit supply if prices fall back too far from their current high levels.

Gold benefits in this analysis from the fact that it has a zero or negative correlation with other assets so its inclusion in the portfolio reduces the overall volatility see table 5.

This Free Writing Prospectus is being filed in reliance on Rule b.

Asian markets such as China and India are traditionally strong sources of demand for gold, both for jewellery and as a store of wealth, and increasing income and wealth levels have resulted in compressikn for gold rising rapidly. Combining these long and short-run factors we estimated an equation explaining movements in the nominal price of gold over the period Our scenario analysis considers four possible outcomes: This features an interaction between strong growth, an oil shock and lax monetary policy, which pushes inflation into double digits toward the end of the forecast period.


D growth rate of 0. US broad exchange rate US nominal broad exchange rate. Steady economic recovery in major economies supported by strong emerging market growth. Although house and share prices receive some initial support from the higher inflation environment, their performance stalls at the end of the scenario as recession ensues.

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In the last years, the only examples are the Great Depression of the s and the nineteenth century Great Moderation. This is our comprsssion and most likely scenario, in which the global economic recovery proceeds relatively smoothly over the period. This partly reflects the limitations of our modelling framework, which does not include all possible assets.

Real returns and volatilities in the variant scenarios are based on adjusting the base case figures using historic correlation coefficients estimated over with GDP growth and inflation.

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However, historical analysis suggests gold could peak at levels even higher than the current ones, and both past experience and our estimated equation for the gold price also suggest that any ultimate adjustment from peak levels may not be rapid. Our scenario selection is designed to cover possible futures for the global economy that incorporate some of the currently identified major risks to the global economy.

The final variant scenario we explore is one of high inflation based loosely upon the experience of the first half of the s.