Government mulls sovereign gold bond issue around Akshaya Tritiya

Seeks to tap the demand euphoria on that day; gold demand may be good on moderate prices

The government is planning to issue the fourth tranche of sovereign gold bonds around Akshaya Tritiya, according to sources in the know.

Akshaya Tritiya, which falls on May 9 this year, is an important day for the bullion market as people consider buying gold on that day as auspicious. In the past two years, gold demand on this day stood at 25-30 tonnes. In 2013, around 50 tonnes of gold was estimated to have been sold on Akshay Tritiya.

The government has issued three tranche of sovereign gold bonds so far, with a total subscription of around 5,000 kg. Of this, the second tranche accounted for around 60 per cent. The third tranche evoked very poor response because it was issued in March last year when investors were more focused on investing in tax-saving products and gold price was also at Rs 2,900 a gram for bonds, which was considered quite high.

Prices are around that level now, but with Akshaya Tritiya round the corner, gold prices are likely to moderate.

Already, prices have seen a correction over the past few days. According to a research note by London-based Natixis commodities, lease rate for gold turned negative or -0.2 per cent on Tuesday. At such negative rates, lenders who are mostly global central banks, are not inclined to lend. This typically happens when demand is low. In such a scenario, market prices remain weak. Currently, gold is trading around $1,230 an ounce.

According to Natixis, Indian demand is still weak. Gold Fields Mineral Services (GFMS) has also said that gold price outlook for the near future is weak and prices could fall below $1,200 an ounce.

Currently, spot prices are at nearly Rs 29,000 for 10 gm. Gold in the spot market is still quoted at $16 an ounce and GFMS expects this discount to go as demand emerges. Akshaya Tritiya is one such big occasion for gold demand.