Lower risk15 portfolios place more emphasis on. These scenarios were run using the Oxford Global Macroeconomic Model, which contains both foreign trade linkages between countries and a detailed financial sector. In addition to these variables we also found it necessary to include dummy variables for the last quarter of and the first two quarters of to improve the fit of the equation. Equities 5 2 3 4. Oxford Economics cannot accept any liability arising from any use of this document.

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Investment strategy has to take account of factors other than the expected return on alternative assets.

Notably, however, the correlation inwhen the spread widened sharply, is less strong and gold has also remained madixon even though the BBB-AAA spread has narrowed sharply over the last 18 months. Summary table of results. By contrast, the Depression saw deflation resulting from the combination of a financial shock and a botched policy response leading to a sharp contraction in the money supply and a massive decline in world output.

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They are also trained in energy conservation and will help you choose smarter, greener products that will provide the best return for your dollar. This gives your company long-term savings ensuring you are getting the most out of your compressor. Filed Pursuant To Rule These factors have led to madiosn strong rise in gold prices and it might be expected that gold prices will tend to fall back in the years ahead.

Firstly, that gold went out of fashion as an asset of choice in risky periods, being superseded to some extent by cash and government bonds. In contrast to other commodities, gold does not perish or degrade over time, giving it unique properties as a very long-term store of value.

The performance of gold is boosted by high US inflation throughout the forecast period, coupled with a weaker dollar and often-negative real interest rates. Oxford Economics cannot accept any liability arising from any use of this document. Average investor range covers standard deviations of returns from, average allocations across this range used. However, the reality mt55 more complex as the gold price does not simply move in line coompression the general price level but rather exhibits long periods where it moves without any apparent link to inflation trends.


House prices are expected to recover only slowly while bonds perform relatively weakly due to the normalisation of short-term interest rates. Equities perform better than all other assets except gold. The recent financial crisis, which raised financial stress levels. These factors give gold an unusual set of behavioural characteristics compared to other financial assets, which will be examined in more detail below.

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Although the large balance sheet expansion has yet to feed through into rapid growth in broader money supply measures considered the key drivers of inflation there are concerns that this may only reflect the damaged state of the banking system and that broad money measures will soar once banks comoression to full health.

The basis point rise in the credit default premium in late can explain 6.

It is made even more difficult by the absence of clear objective measures maidson political risk, which makes it hard to test for the impact of political instability. There appears to be two possible reasons for this. Price deflation in many countries, steep asset price falls, interest rates near zero for long period.

Lack of correlation with other assets gives gold a useful role in stabilising the value of a portfolio. The major economies are tipped into recession in and financial stress levels soar as a result.

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As a result, gold prices lack the strong link to the economic cycle that other commodities have and gold has thus often exhibited low or even negative correlations with these and other financial assets. As expected, a comlression in the real interest rate reduces the price of gold; the equation suggests that a basis point fall in the real interest rate will result in an initial 1.


This includes dollar-based investors concerned about possible inflationary consequences of a weak dollar. compressuon

The absolute size of the coefficient determines the speed of adjustment, with a higher value signalling quicker adjustment. We experimented with a number of specifications incorporating the above factors compressionn some others, but many were found not to add explanatory power and were dropped from the equation.

Relatively small variations can lead to quite large shifts in the optimum allocations, illustrating that major economic shocks or significant reassessments by investors of the properties of different assets could lead to a big move in the actual content of the portfolios of mainstream investors.

The coefficient g takes a value between 0 and -1; if we start from equilibrium and the price of gold rises faster than the general price madisson today, the error correction term will result in gold prices falling tomorrow other things equal to move back towards equilibrium and vice versa if gold prices rise more slowly than the price level today the error correction term will push gold prices upwards in the following period. With the assumption that all 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.

Although the methodology used in this study was quantitatively rigorous, the approach taken to modelling the price of gold and constructing the scenarios was macroeconomic.

Exchange rate, alternate scenarios. Faster than expected initial growth closes output gaps.