Home >Money >Personal Finance >Gold price correction: Should you invest in current issue of sovereign gold bonds?

First gold bond issue of 2021 has opened for subscription today. The issue has been priced at 5,104 per unit (One unit of sovereign gold is equal to 1 gram of gold). Those who invest online will get a discount of 50 per unit.

However, MCX gold futures expiring on 5 February closed at 48,967 on 8 February. Gold has corrected around 10% from its peak in August last year. So, is it a good time to invest in gold? Experts believe that the price is good, as progress on the covid-19 vaccine has kept the gold prices under pressure.

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According to N S Ramaswamy, head of commodities, Ventura Securities, money flow favoured the equity markets (Dow Jones and S&P 500 index, a smart gain of 5% to 6%) with emerging markets seeing an appreciation between 15% and 18% due to the weak dollar index. The correlation of gold versus S&P 500 (moving in the same direction) was broken, he said adding that progress on the covid-19 vaccine has also put the yellow metal under pressure.

As major economies across the world gear up to administer the covid-19 vaccine building up the hope that normalcy will return soon, gold prices have corrected. Apart from this the better-than-expected economic recovery data has improved the sentiments towards riskier assets such as equities. Equity markets including India have touched an all-time high.

However, experts still believe gold prices are likely to march upwards in 2021 as the economic recovery will take time. The world was already grappling with lower growth even before the pandemic hit the economic activities. There may be short-term volatility but it could be used to accumulate gold.

It is advisable to have around 10-15% of your portfolio in gold to work as a hedge given its negative correlation with riskier assets such as equity. Sovereign gold bonds are one of the most recommended instruments for those looking for long-term investment in gold, as over and above the price appreciation, government pays an interest of 2.5% on these bonds. These bonds have a lock-in of 8 years and exiting before maturity is difficult. But if you hold these bonds till maturity, there won’t be any capital gains tax. In case you are planning to buy gold bonds, you may look at spreading your investments over the upcoming issues.

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