Rbi Cuts Gold Bond Rates To Cash In On Bullion Meltdown

In its sharpest cut ever, the Reserve Bank of India (RBI) reduced the price of gold bonds at its open market purchase window by more than Rs 260 on Saturday. The apex bank reduced its buy offer to Rs 3,665.60 from its earlier offer of Rs 3,928.36 on July 11.

The RBI is attempting to buy back the gold bonds it issued in 1993 as the outflow of gold would be reduced when the bonds mature in March, 1998. The bonds have to be redeemed in gold plus an interest of Rs 400 per bond. The RBI is attempting to capitalise on the panic in bullion market due to the crash in yellow metal prices and buy the bonds in cash, said Dinesh Parikh, a bullion merchant and analyst.

The 24k Gold is currently traded at around Rs 4,350 per ten grams in the domestic markets, the RBI usually buys the same at ten per cent discount over the gold prices. However, the move by the RBI on July 12 clearly indicates that it wants to profit from the panic in the bullion market, said Parikh.

The RBI feels that bullion merchants who bought the bonds to convert their hoarded gold into white money will sell back their bonds to the RBI. This is unlikely to happen as selling the bonds at current prices would mean booking huge losses, Parikh said.

The RBI is seen reducing the prices in line with the fall in domestic gold prices. However, the RBI moves have come a cropper as there are few sellers at the RBI window, bullion merchants told Business Standard.

The Gold bond scheme was introduced in 1993 with the intention of bringing hoarded gold into mainstream economy. Under the scheme, the carrot of immunity from revealing the source of acquisition of gold was offered to the first holder of the bond. However, subsequent holders did not have this immunity. The RBI collected nearly 41.6 tonnes of gold from about 37,635 people.

The scheme offered to redeem the bond in March, 1998, with an equivalent amount of gold sold to the RBI plus an additional Rs 400 per gold bond. Each gold bond is worth 10 grams of gold.

The RBI is seen moving its buy offer southward during the current fiscal in line with falling bullion prices. The apex bank, earlier offered to sell the paper at Rs 4,068.92 on April 22, 1997. The prices were moved down to Rs 3,966.30 on May 2 which were revised downward to Rs 3,955.90 on June 21. The RBI, further pulled the prices down to Rs 3,928.36 on June 30.The RBI does not reveal the figures of the gold bond that it buys back.

Sources told Business Standard: The bonds were listed on the Bombay Stock Exchange for secondary market tradings, however, the bonds are most inactive instruments as hardly any trades are seen.