Sale of sovereign gold bonds at a record high in July in times of Covid-19

In the July SGB issue, bonds equivalent to gold worth 4.13 tonnes were sold, according to the official data

Investors’ appetite for sovereign gold bonds (SGBs) has seen a stellar increase. In the July SGB issue, the government sold bonds worth Rs 2,004 crore, according to official data. This means bonds equivalent to gold worth 4.13 tonnes were sold.
 

Since the launch of SGBs (November 2015), this has been the best month in terms of quantity of gold sold, and amount raised in the issue.

Owing to the lockdown, most jewellers had shut shop in Q1FY21. As a result, those who wanted to put their money in gold resorted to investing in SGBs and gold exchange-traded funds (ETFs).

In April-June, gold ETFs saw net inflows of Rs 2,000 crore. However, gold bond sales in the first four months of FY21 have been the highest for any financial year since the launch.

A total of Rs 5112 cr worth more than 10.8 tonnes of SGBs have been sold by the government, raising Rs 5,112 crore ($680 million) in the process. This is almost equal to the gold import bill for April-June 2020.

In 2016-17, an amount of Rs 3,481 crore was raised for the entire year. However, the government had sold bonds worth 11.4 tonnes that year.

“SGBs have turned out to be best digitised instrument for investing in gold, which has emerged the best performing asset class. A record number of investors in the new series of SGBs reflect wide acceptability for digitised investment. Gold has given a YoY return of 41 per cent, with expectations of decent returns for the rest of the year. High net worth individuals, as well as retail investors are investing in SGBs,” said Shekhar Bhandari, senior executive vice-president of Kotak Mahindra Bank.

SGB is a form of paper gold. During the lockdown, when jewellers were closed, this was an easier way to invest in gold without taking physical delivery.

Bonds are beneficial by way of being pure investment products. Traditionally, gold investors used to buy jewellery, and refrained from selling them later owing to sentimental reasons.