Gearing up for recession? Don't forget to buy gold

Posted On Tuesday, Apr 21, 2020


Bad news: Recession is here.

Good news: Gold could help you get through it

We give you 5 reasons why.

1) In times of recession, counterparty risks in paper assets like bonds tend to increase. Gold, on the other hand, cannot default, go bankrupt or fail to carry out its end of the deal. Its value is retained in spite of the recession as it is backed up not by paper promises but by inherent value.

2) Unlike equities, gold does not require a business to keep it afloat. Gold's value isn't dependent on revenues and profits. This makes holding gold imperative during an economic downturn when stocks are hit by losses due to a deteriorating economy.

3) As central banks cut rates to facilitate flow of credit into the system and reignite economic activity, your fixed-income instruments will yield lower or reprice at a lower rate of interest. This reduces the opportunity cost of holding gold, further increasing its attractiveness as an asset class in a low-yielding recessionary environment.

4) Central banks are injecting liquidity with their bond-buying programs to dodge a system-wide collapse and boost economic activity. With too much of this easy money floating around, there is a probability of higher inflation over the next few years, lowering the purchasing power of the currency you hold. In contrast, gold is a reliable store of value as it cannot be printed or created at the discretion of central banks.

5) Gold benefits from economic distress and crisis as people shun risk assets and flee to gold’s safety. The asset class thus attracts more flows, and this momentum, in turn, ensures further gains.

Gold is thus an ideal asset class to help your portfolio get through a recession. Go ahead and buy the metal, if you haven't already.

Given the nationwide lockdown, there are restrictions on the movement of people as well as non-essential goods. This could make it difficult for you to go about sourcing physical gold coins and bars for your investment needs. But you can always choose to increase your much-needed allocation to Gold via the Gold Fund route. Rather, this is indeed an opportunity to shift towards an efficient way of buying gold through Gold Funds where units are backed by physical gold holdings of 24 Karat. They are well regulated and continue to operate despite the lockdown, becoming a preferred way to invest in gold as you can sit in the safety and comfort of your home and buy and sell gold as and when you want.

Product Labeling

Name of the Scheme & Primary BenchmarkThis product is suitable for investors who are seeking*Risk-o-meter of Scheme
Quantum Gold Fund

An Open Ended Scheme Replicating / Tracking Gold
• Long term returns

• Investments in physical gold.
Quantum Gold Fund
Investors understand that their principal will be at Moderately High Risk
Quantum Gold Savings Fund

An Open Ended Fund of Fund Scheme Investing in Quantum Gold Fund
• Long term returns

•Investments in units of Quantum Gold Fund - Exchange Traded Fund whose underlying investments are in physical gold.
Quantum Gold Savings Fund
Investors understand that their principal will be at Moderately High Risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – to read scheme specific risk factors.

Above article is authored by Quantum.

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