As the year is coming to a close, the financial economy in large parts of the world is characterised by high levels of uncertainty and central banks navigating through widely unknown territory. In this article, I want to take a brief look at the state of affairs in a few different economic areas and analyse potential implications for monetary policy decisions. For this purpose, a proxy for the financial cycle as developed by Drehmann et al. (2012) from the Bank for International Settlements (BIS) is presented as a visualisation tool. This concept captures cyclical fluctuations in both private credit and house prices. A high point represents above-trend volume of credit to the private non-financial sector and elevated asset prices. A low point on the other hand indicates a contracted credit and housing market (You can find a very brief description how the financial cycle is derived at the end of this article). Additionally, I consider some other important developments throughout the global financial economy. Continue reading “The Financial Cycle Around the World in 2016”
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When uncertainty about the economic future and the perceived probability of market downturns rise, investors often turn to so-called “safe havens” to protect their savings. Especially when these factors are combined with concerns about increasing inflation, gold often gains centre stage in safe haven consideration. In the aftermath of the Financial Crisis and during the Euro Crisis, the gold price surged to levels not seen since the beginning of the 80s (in real terms). However, although uncertainty arguably has not decreased after the Brexit referendum in June and the election of Trump in November and with the referendum on constitutional reform in Italy this Sunday (December 4) looming, gold prices have been falling since July of this year. What is driving these developments? What are the reasons for and against investing in gold? Does it make sense to invest in gold at the moment? Before I investigate these questions, let us take a brief look at the history of gold as a financial tool. Continue reading “Aurora – A Short History of Gold and a Brief Look at Its Investment Opportunities”