The curtain seems to have come down on sovereign gold bonds (SGBs) as the Treasury has not committed to issuing the first tranche of paper gold this financial year.
“This is a very expensive means of borrowing and is not allowed at this time due to economic rationality,” the official said. There is no mention of SGB in the loan calendar for the second half of the year.
This statement was made as the latest redemption tranche (SGB 2016-17 Series III – issue date November 17, 2016) delivered an impressive return of 159 per cent with November 16 maturity.
According to a notification from RBI issued on November 8, the redemption price was set at ₹7,788 per unit. This means that those who bought this bond in 2016 at the original issue price of ₹3,007 per gram could realize a profit of ₹4,781 per gram on redemption. “This is not a social security system. Every decision regarding new issuance is taken on the premise that it should benefit not only the customers but also the government,” the official asserted.
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expensive tools
The last tranche of SGB (FY2023-24 Series IV) was issued on February 21. Total procurement amounted to Rs 27,031 crore (44.34 tonnes) in FY 2023-24. Since the launch of the SGB scheme in November 2015, a total of Rs 72,274 crore (146.96 tonnes) has been raised through 67 tranches.
Officials also said the number of problems is decreasing because this is a very expensive tool. There were 12 publications in FY2011, but this decreased to four in FY2014. There have been no problems so far this season.
There was a view in the secondary market that no decisions had been made regarding the new tranches, which was reflected in the very high demand for these bonds in this segment over the past few months. SGB is traded on RBI’s retail direct online portal. SGB trading increased in August with trading volume of Rs 5.3 million (as of August 2024) compared to Rs 1.5 million (as of July 29) in the previous month and Rs 1 million (as of June 30, 2024) in June. As of the 26th). Per data collected from the portal by ARWL.
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important elements
SGB’s fate appears to have been sealed after the government reduced import duties on gold from 15% to 6%, making physical gold purchases more attractive than investing in SGB.
At the same time, the government is expected to have to shoulder higher spending as the second year of SGB issuance approaches maturity and gold prices have nearly doubled in the past eight years.
In fact, RBI has already announced early redemption of 30 tranches (issued between May 2017 and March 2020) from October 1 to March 31 next year.
