News & Views

Sovereign gold bond: Should you invest in them ahead of Akshaya Tritiya?

The first tranche of the sovereign gold bonds (SGBs) of this financial year opened for subscription on Monday ahead of Akshaya Tritiya on April 28.

Rising global uncertainties and a discount of Rs 50 per gm on the nominal value and an interest rate of 2.50 per cent per annum payable every six months on initial investment make these gold bonds a good buying option.

The Reserve Bank of India on Friday announced the issue price for the new tranche of gold bonds at Rs 2,901 per gm of gold. The issue will close on April 28 and the bonds will be issued on May 12.

The issue price of the bond is based on the simple average closing price (published by the India Bullion and Jewellers Association) for gold of 999 purity of the week preceding the subscription period. It works out to be Rs 2,951 per gm. However, the government, in consultation with RBI, has decided to offer a discount of Rs 50 per gm on the nominal value of the sovereign gold bond.

The near-term outlook for the yellow metal looks promising. IIFL in a research note said, “In our short-term outlook on gold, we still prefer the long side, given the uncertain backdrop and ongoing weakness in the US dollar.”

According to SMC Investment and Advisors, the forthcoming gold buying festival of Akshaya Tritiya will boost physical demand for the yellow metal. Gold imports by India are said to have jumped almost seven-fold in March from a year earlier, as jewellers stocked up the commodity anticipating demand recovery during the ongoing wedding season.

Gold consumption in India, the world’s second-biggest consumer, has been recovering after a falling to the lowest level in seven years in 2016.

Investors stepped up buying of the world’s largest gold-backed exchanged-traded fund by the most in seven months amid concern over the outcome of European elections and a more aggressive US stance on North Korea, Syria and Iran as holdings in SPDR Gold Shares rose to 860.76 tonnes.

The gold bonds will be sold through post offices, banks, Stock Holding Corporation of India (SHCIL) and recognised stock exchanges – NSE and BSE – and the minimum investment limit for these bonds will be 1 gm, while the maximum amount that can be subscribed will not be more than 500 gm per person per financial year.

On a year-to-date basis, gold prices have jumped over 6 per cent to Rs 29,328 per 10 gm till April 21, 2017. As per data available with NCDEX, the precious metal was quoting at Rs 27,591 per 10 gm on January 3. .