Gold Bond Scheme

It looks a lot more attractive, this time around…

The second tranche of the Sovereign Gold Bond scheme seems to be better designed and executed compared to the first tranche. Considering the current global scenario and asset preferences, one must seriously look at the Sovereign Gold Bond scheme this time around. Here is why…

Pricing looks better…

 The second tranche of gold bonds has been priced at Rs.2600/gm, which is lower than the current market price. This is contrary to the first tranche wherein the issue price of the gold bond was fixed at higher than the prevailing market rate. This made it a non-starter in the first place. That problem has been obviated in the second tranche. From a retail investor perspective, this scheme adds a lot of value as gold can be held in non-physical form and there is no additional cost involved.

Global market scenario is ideal…

Gold has typically given best returns in times of economic, political and geo-political uncertainty. Today, there is a general aversion towards financial assets as gold appears to be a better bet as a safe-haven investment. Secondly, gold has corrected sharply in the global markets from a high of $1900/oz in late 2011 to a low of $1050/oz in 2015. This fall was largely a reverse trade on the US dollar. With the dollar substantially strong and concerns in Europe, Middle East, West Asia and in China, it seems like the time for gold may have arrived. At least, it may be one of the best stores of value in such volatile conditions. That will hold gold in good stead and that is likely to favor prices in the medium term.

What else can the government do?

The government can do a few more things to make this scheme more attractive. To begin with, the government can make these bonds available on tap so that retail investors can do a SIP on these gold bonds since it is possible to buy as low as 2 grams denomination. The government needs to ensure that more tax breaks are extended to gold bonds. To encourage shift towards gold bonds, they can be given the status of securities as opposed to physical gold. The government can look at tax breaks on investment as well as interest on the bonds.

The gold bond scheme will add a lot of value as it will cut down on the appetite for physical gold. India is paying precious foreign exchange to import gold and that be reduced if the investment demand can be channeled into the non-physical mode. Finally the scheme has been well thought through and well executed. One only wishes that it becomes a little more tax-friendly, considering its economic benefits. The gold bonds surely deserve a tax break. That will surely go a long way! ©

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