collapse of the Bretton Woods system

In August 1971, when the then US president, Richard Nixon, announced that his country was no longer prepared to convert USD into gold, major countries shifted to a system of flexible or floating exchange rates in 1973 and by the onset of 1980s exchange rates become volatile and misaligned mainly due to abolition of capital controls and the implementation of financial deregulation, within this environment the Gold market has becoming larger and stronger and wisely understood and the world witnessed change driven by event such as liberalisation of the Gold market in China , increased demand in the east and recognition of Gold as financial assets of investment portfolio models.

Fluctuation in Oil prices

Fluctuations in oil prices are believed to exert profound Influence on economic & financial activities and theoretically, higher oil prices reduce output and raise prices and interest rates, consequently affecting exc. FX rates and Gold. However Empirically these relations are controversial.

The price of oil rose in 1973-1974 and again in 1979-1980 (Iraqi invasion of Kuwait-short lived as prices returned in 1986 to around the 1979-80 values.)

Since 1986, observed a cycle of rise and fall and In 2003, the price rose due to Iraqi weapon crises and then fell in April of that year as developments in Iraq unfolded (not seen in annual data)

Having reached a record of USD 147 a barrel in 2008, the price of oil collapsed during the global financial crisis.

Increased Volatility of Financial markets

Volatility: Short-term movements of financial asset prices along the long-term trend.

Increased volatility of exchange rates can be traced back to the collapse of the BW system in the 1970s. and More recently, the volatility of exchange rate has been due to the erratic movements of speculative capital flows and Increased volatility of interest rates can be traced back to the 1979 shift by the Federal Reserve to money supply targeting

Financial crises ,Contagion the GFC

Financial crises have become widespread in the post-war period, particularly since the 1980s.

(Contagion is the process whereby a financial crisis moves from one country to another) and Major examples of crises with contagion (significant spillovers) & capital flight: Europe: EMS (currency) crisis 1992/93 and Russian crises of 1998, Latin America: 1994/95 Mexican crisis (unsustainable external balance, an overvalued currency pegged to USD, fragile financial system), Brazil crises (devalued its currency in 1999), 2001/02 Argentine crisis (forced the govt. to abandon the fixed parity exchange rate with the US), Asian crisis of 1997/98 (in Indonesia, Korea, Malaysia, the Philippines, and Thailand).

The global financial crisis (GFC):  resulted from the US subprime crisis, leading to the “Great Recession” of 2009, since then The GFC is far more complex than earlier crises because financial innovation have created complex securities whose risk profile is difficult to assess.

World Gold Council reporting Global demands trends and increasing Gold reserve by central banks for monetary policies purposes and jewellery demand as well , the main driver of this demands because In the time of uncertainty, volatility and global financial crises ( GFC) , Gold can protect financial future of household and nations by:

• Reserving constant of value
• A safe heaven
• Gold as an uncorrelated risk diversifier
• Hedge ( Tahawoot ) against currency depreciation.