Sovereign gold bonds listed on exchanges trade at 11.5% premium to issue price

Sovereign gold bonds issued in last November as a plan to control import of gold and also simultaneously give an option to investors to earn gold returns have been listed today on both mainline stock exchanges — the Bombay Stock Exchange and the National Stock Exchange. 

Bonds were listed at a 11.5% premium to issued price. Today, the first tranche of the bonds were issued at Rs 2682, and the first trade took place for 4 grams at Rs 2986, which is a nearly 11.5% premium, including interest. Annual interest is 2.75%. BSE calls it dirty pricing. 

So far the government has issued three tranche of bonds — first, in November 2015, at a gold price of Rs 2682 per gram, second in January this year at a gold price of Rs 2600 per gram and third in last March at a price of Rs 2900 per gram. 

Bonds are considered as a part of central government borrowing programme, have a maturity of 8 years but listing on the stock exchange provides them liquidity to compete with gold ETFs. Gold ETF purchases have to be backed by buying of physical gold, while gold sovereign bonds are not backed by physical gold but the government which is  the issuer issues through the central bank takes the price risk and also pays 2.75% interest on issue price annually, payable every six months.