Huge response to sovereign gold bonds may continue, say mkt players

August issue saw record response; all eyes on festival season sales

High gold prices appear not to be a deterrent for those investing in gold as is reflected in the latest issue of sovereign gold bonds (SGBs) that opened this month. As much as 6.35 tonnes-worth of bonds were sold, the highest ever, and helped the government raise Rs 3,387 crore.

Going ahead, experts say the response during the festive season will be crucial. This is for two reasons: One, gold prices have seen wide fluctuations in recent trade, and, two, investors might diversify their investments.

Most experts, however, say the response to future SGBs will remain high as investors are gradually accepting them as long-term investment instruments. “So far, over 17 tonnes of gold bonds have been sold in financial year 2020-21 (FY21) and the government raised Rs 8,499 crore from the five SGB issues this year. Totally, over 48 tonnes of gold bonds were sold since November 2015 via SGBs,” according to the official data. The bonds were offered at a price of Rs 5,334 per gram in August — the highest ever.

 

 

After reaching a high of $2,075 per ounce in the international market on August 7, gold fell over $100 in a day and fell over 10 per cent before rising above $2,000 per ounce again. In the domestic market also, there was over 10 per cent fall from the peak of Rs 56,126. In the Mumbai physical market, standard gold price closed at Rs 53,600 per 10 grams on Tuesday.

Gold exchange-traded funds (ETFs) have also seen a similar rise in demand. In July, there was net inflow of Rs 921 crore in gold ETFs, taking the net inflow in the first seven months of this year to Rs 4,500 crore.

Though the metal has pulled back sharply from its record high, Chirag Sheth, principal consultant, India & South Asia for Metals Focus, a global research firm, said the current period is one of consolidation and conditions are ripe for the rally to reignite. As a result, prices are forecast to post fresh all-time highs in early 2021 and then march higher to around $2,400 before the year is out.

Those investors who had invested in the initial issues in 2015-16 have so far seen annualised returns of 16 per cent, considering price rise and 2.5 interest income on the invested amount. Gold prices have doubled since the first issue.