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The first-ever sovereign gold bonds sold by the Indian government to retail investors in November listed on the stock exchanges on Monday at a large premium, and gained further during the day.

The bonds were listed on the National Stock Exchange (NSE) and BSE on Monday. On the NSE, the first trade was struck at 2,930 per gram, 9.4% above the issue price, and touched an intra-day high of 3,258 per gram, more than 20% of the issue price. The bonds ended the session at 3,147.75 per gram on the NSE.

Bankers said it is encouraging to see a good volume of trades in gold bonds and the premium could attract more investors to the security. On the NSE, 11.31 lakh worth of gold bonds changed hands and 11.87 lakh were traded on the BSE on Monday. “This interest also gets factored. With global uncertainty continuing and global currencies getting debased due to loose monetary policies, gold is likely to retain its lure as an alternative currency. Since the November tranche was issued when gold prices were at the lower end, the premium is likely to sustain," said Sriram Iyer, chief executive officer, Religare Wealth Management Ltd.

The rise of the price of physical gold too could boost demand for gold bonds as investors seek benefit from a tradable instrument the returns of which are linked to the spot price of gold. The spot price of gold has climbed 14.24% since the first tranche of gold bonds was issued on 30 November. Spot gold on MCX closed at 29,496 per 10 grams on Monday.

According to Iyer, as bonds issued in subsequent tranches get listed, the premium could fall as bonds issued in the third tranche were priced higher than those issued in the previous two tranches.

But, taking into account the interest income that the investor earns, the premium would be still substantial.

“Premium on gold bonds will largely depend on the rupee price of gold. That means the global price of gold needs to move up and also the INR should not sharply depreciate against the dollar. If these conditions are met, we can expect premiums to expand further," he added.

Gold bonds were launched as part of the government’s plan to wean away Indians from physical gold and into financial products. So far, bonds worth 1,311 crore have been issued in three tranches.

Bonds issued in the first tranche have started trading, after a circular from the Reserve Bank of India (RBI) on 8 June that allowed gold bonds issued on 30 November to be traded on exchanges from 13 June.

RBI had set the price for the first tranche of bonds at 2,682 per gram, which was higher than the price of physical gold at that time. A little over 250 crore was received by the government as subscription in the first tranche. But the subscription rose in the second tranche to 726 crore because the price of the bond was set higher at 2,600 per gram.

Given that investments during March are largely driven by tax planning, the subscription at the third tranche that opened between 8 March and 14 March was lower at 329 crore. The price for the third tranche was set at 2,916 per gram.

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