ECONOMIC CRISIS
Usually, everything is going fine. But from time to time something bad happens and the crisis breaks out. It may either apply to our business (or personal life), or the whole economy. Then, we talk about “economic crisis”.
There are many types of economic crises: currency crisis, debt crisis, bank crisis, broad financial crisis, GDP crisis, etc. We analyze “financial crisis” in a separate entry, focusing in this case on the latter meaning. We do this for two reasons. First, this is usually what people have in mind when they talk about “economic crisis”. Second, it is the most serious crisis as it entails the most severe effects on human welfare and the whole economy (in terms of increased unemployment and reduced income) often spurring other crises.
So, in the simplest terms, economic crisis is a sharp transition from expansion to a recession, or from boom to bust. Economic crises are, thus, related to the business cycle. They are characterized by a sharp fall in GDP and the rise in the unemployment rate. Investors are shocked and they panic. Nobody knows what will happen next, so there is a lot of uncertainty.
Economic Crisis and Gold
The widespread belief is that gold shines during economic crises. There is something in it, as the safe havens often thrive when economies are struggling, while markets are in turmoil. Indeed, as one can see in the chart below, gold gained during most of the several last US recessions (the timing of recessions is reflected by the rectangles).
Usually, everything is going fine. But from time to time something bad happens and the crisis breaks out. It may either apply to our business (or personal life), or the whole economy. Then, we talk about “economic crisis”.
There are many types of economic crises: currency crisis, debt crisis, bank crisis, broad financial crisis, GDP crisis, etc. We analyze “financial crisis” in a separate entry, focusing in this case on the latter meaning. We do this for two reasons. First, this is usually what people have in mind when they talk about “economic crisis”. Second, it is the most serious crisis as it entails the most severe effects on human welfare and the whole economy (in terms of increased unemployment and reduced income) often spurring other crises.
So, in the simplest terms, economic crisis is a sharp transition from expansion to a recession, or from boom to bust. Economic crises are, thus, related to the business cycle. They are characterized by a sharp fall in GDP and the rise in the unemployment rate. Investors are shocked and they panic. Nobody knows what will happen next, so there is a lot of uncertainty.
Economic Crisis and Gold
The widespread belief is that gold shines during economic crises. There is something in it, as the safe havens often thrive when economies are struggling, while markets are in turmoil. Indeed, as one can see in the chart below, gold gained during most of the several last US recessions (the timing of recessions is reflected by the rectangles).
