With no word on the issuance of Sovereign Gold Bonds (SGBs) from the government in the current financial year, the demand for these bonds has risen in the secondary market in the last couple of months, with scarcity value driving it.
The last primary issuance of SGBs of eight years tenor was in February 2024. It may be pertinent to note that the Reserve Bank of India last month announced that it will prematurely buyback 13 series of these bonds, which were issued in 2017, in the current calendar year.
“This scarcity has heightened interest from retail investors who seek to acquire SGBs before future issuances or anticipate rising prices driven by increasing demand,” said Feroze Azeez, Deputy CEO, Anand Rathi Wealth Ltd (ARWL).
SGBs are traded on RBI’s Retail Direct online portal. Trading in SGBs rose in August, with the traded volume being ₹53 lakh (as on August 26) against ₹15 lakh for the previous month (as on July 29) and ₹1 lakh in June (as on June 30, 2024), per data compiled by ARWL from the portal. As per data for the current month, trading volume was ₹22 lakh as on September 16.
Azeez observed thatthe outlook for SGBs in the near term is optimistic as the aggressive 50 basis points cut in the Fed Funds rate by the US Fed has pushed up gold price, with lower interest rates making the yellow metal more attractive compared to fixed-income assets.
“Furthermore, ongoing geopolitical tensions and supply chain disruptions are likely to continue supporting the demand for gold as a safe haven asset. As a result, SGB prices in the secondary market could see further appreciation.
“Central banks’ increasing demand for gold to diversify their reserves further strengthens the outlook for gold and SGBs. With the added advantage of tax exemptions on capital gains and the 2.5 per cent annual interest payout, SGBs will likely remain a favoured investment vehicle for retail investors in the coming months,” the ARWL Deputy Chief said.
Investors’ holding up
Retail investors’ holding of SGBs on the Retail Direct online portal jumped about 63 per cent year-on-year to 738.67 kg as on September 9, 2024 against 453.78 kg as on September 11, 2023.
SGBs are issued in denominations of one gram of gold and in multiples thereof. They are substitutes for holding physical gold. Investors pay the issue price in cash and the bonds are redeemed in cash on maturity. The Bonds are issued by RBI on behalf of Government of India.
Minimum investment in the bond is one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March).
