Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Stock-market-news/  Sovereign gold bonds outshine yellow metal as trade volume climbs
BackBack

Sovereign gold bonds outshine yellow metal as trade volume climbs

Sovereign gold bonds were trading at Rs3,400 per gram on the NSE on Friday, a 27% premium over the fixed price of Rs2,682 at the time when the bonds were first issued in November

Prices of physical gold have risen 23% to Rs3,089 per gram on the MCX during the same period. Photo: BloombergPremium
Prices of physical gold have risen 23% to Rs3,089 per gram on the MCX during the same period.
Photo: Bloomberg

Mumbai: Investors have earned more through sovereign gold bonds than physical gold ever since the paper version of the yellow metal was introduced in November last year.

Sovereign gold bonds were trading at 3,400 per gram on the NSE on Friday, a 27% premium over the fixed price of 2,682 at the time the bonds were first issued in November.

Prices of physical gold have risen 23% to 3,089 per gram on the MCX during the same period.

To be sure, the price of the gold bonds depends on that of the underlying physical gold and the bonds traded on exchanges currently are from the first tranche, the price of which was the lowest compared with the tranches that followed.

The government issued gold bonds worth an aggregate 1,050 crore in three tranches and will issue a fourth tranche later this month.

The Reserve Bank of India (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— 2,505 per gram—at that time. These bonds are now traded at a premium of over 27%. 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 than the price of physical gold at that time.

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.

The central bank has set the price for the fourth tranche which would be open for subscription between 18 July and 22 July at 3,119 per gram, while the price of physical gold was at 3,089 per gram on Friday.

Gold bonds, issued by the government, are denominated in grams with a maximum tenure of eight years. Investors get a fixed interest rate of 2.75% per annum on these bonds over and above the capital gains that may accrue if the price of gold rises in the spot market.

Given the hefty premium that sovereign gold bonds command now, it is not a surprise that trading has picked up.

A month since this first tranche of gold bonds were allowed to be traded on 15 June, volume has more than doubled on the stock exchanges, belying the popular belief that gold in paper form would not find favour with Indians, traditionally big buyers of physical gold.

“This is a good sign given that gold bonds are a retail product. This shows people are willing to trade. My guess would be that the trades are driven by HNIs (high net worth individuals)," said an official at a wealth management firm, seeking anonymity as he is not authorised to speak to the media.

Gold bonds changed hands 433 times on the NSE on 15 July, clocking a turnover of 1.46 million, a sharp climb from 235 transactions worth 7,45,000 on the first day of trade, 15 June. The premium too soared to 3,400 per gram on Friday from 3,185 on the first day. The rise in the price of the bond indicates that individuals are keen to buy gold bonds.

The gold bonds are part of the government’s gold monetization efforts launched in November last year, aimed to wean the public off physical gold. Import of physical gold had resulted in a burgeoning current account deficit for the country in fiscal 2014. According to World Bank estimates, around 20,000 crore worth of gold is lying with Indian households.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 18 Jul 2016, 01:17 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App