Gold Investment Alert: India Reportedly Weighs Scrapping Sovereign Gold Bond Scheme

The Central Government is likely to discontinue the Sovereign Gold Bond (SGB) scheme. According to government sources quoted in a CNBC-TV18 report, the government may not sell any more Sovereign Gold Bond because it's an 'expensive and complex' instrument.

The Sovereign Gold Bond scheme was launched in November 2015 to tackle India’s rising demand for physical gold. Since its inception, the government has raised a total of ₹72,274 crore through 67 tranches, equivalent of 146.96 tonnes of Gold.

In the last few years the popularity of SGBs has soared, with investors buying ₹27,031 crore worth of the bonds in FY24, equivalent to 44.34 tonnes of gold. That shows a four-fold jump from bond sales worth ₹6,551 crore in FY23, representing 12.26 tonnes of gold.

The Sovereign Gold Bond scheme has caught the investors’ fancy due to two factors – the first one being the surge in gold prices and the second one is the annual interest income.

In 2015, when SGBs were launched, gold prices were hovering around ₹2,600 per gram. However, currently gold is trading at almost ₹7,400 per gram, generating a 200% return since the scheme’s inception.

Now, the sovereign gold bonds are benchmarked to domestic gold prices. This means that investors will get the returns on the bond that reflect the surge in the domestic gold prices.

The second factor is the interest income through SGBs. When the government launched this scheme, it promised a 2.5% per annum simple interest return on investment. This return was to lure investors away from physical gold, which was unable to generate any additional income for investors.

In 2015 the scheme made sense due to falling prices of gold and government’s push to curb gold imports to curb high current account deficit. However, in 2024 it has become an expensive instrument for the government due to the surge in gold prices.

In fact, the government has not launched any new tranche of the Sovereign Gold Bonds in almost six months now. The last tranche of SGBs for the 2023-2024 series was available for subscription from February 12, 2024 to February 16, 2024.