10 July, 2020
7 Min Read
Investing in Gold Bonds
GS-PAPER-3 Economics-Investment (PT-MAINS)
Fourth tranche of sovereign gold bonds 2020-21 are opened for subscription.
The government introduced the gold bonds scheme in 2015. The scheme was introduced to wean away investors from the physical gold market. These bonds have a maturity period of eight years. But, the investors have the option to exit after the fifth year. Funds raised through such issuances form part of the government’s overall borrowings in a year.
What are the benefits of buying gold bonds?
Why price rise??
Much before Covid-19’s impact led to a crash in global stock markets, gold prices had started their upward glide. The global spread of Covid-19 has raised concerns on global growth over the last three or four months.
Negative growth rates and fears of a global recession have pushed central banks and big investors to take shelter in gold. There is nearly 40% crash in benchmark equity indices in the US between February and March 2020. This has forced the US Federal Reserve to announce a record liquidity injection and bond-buying programme of more than $3 trillion.
In India why it has been rising!!!
Will gold prices continue to rise???
Gold is an efficient tool to hedge against inflation and economic uncertainties. It is also more liquid when compared with real estate and many debt instruments. Generally, after any major economic crash and recession, gold prices continue their upward run. Market analysts feel that gold could overtake its previous peak of around $1,900 per ounce in the global market.
Can one invest now?
In India, there is a sharp decline in interest rates over the last year alongside high volatility in the equity markets. This has brought investors’ focus towards gold.
A cut in interest rates by the RBI has led to a decline in interest rates on small savings and term deposit rates of banks. SBI is currently offering an interest of 2.7% on savings bank deposits, and 5.4% on 5-10 year term deposits. Experts say that it makes good sense for investors to invest in gold.
Can the price of gold crash?
Gold Monetisation Scheme
In a move to revive the flagging Gold Monetisation Scheme, the Reserve Bank of India (RBI) has made it easier for depositors to hand over their holdings of Gold.
Temples, High Networth Individuals (HNIs) and entities like fund houses, trusts and even government entities would now find it easier to deal directly with banks instead of CPTCs.
Gold Monetisation Scheme
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