Customs duty cut not a spoiler for sovereign gold bond investors

The duty cut may only dampen demand for SGBs and analysts of the view that it will remain an attractive investment due to the fixed annual interest rate

- BENN KOCHUVEEDAN

On the face of it, the move elated gold buyers as it lowered gold prices in the domestic market, but a section of people - those who parked their hardearned money in the sovereign gold bonds (SGBS) - realised the decision could shave off a few percentage points from their gains.

However, the fear turned out to be untrue. After the kneejerk price correction of around 7% after the Budget announcement on July 23 and a cumulative fall of ₹630/g in the week afterwards, gold prices have already moved up about around 2% as international prices rose and closed at ₹6,390 on August 3. The all-time high domestic price was ₹7,500/g in April this year.

The pleasant surprise, though, for the investor was yet to come. Despite the 5% correction in gold prices, the RBI has fixed ₹6,938 as the redemption price for the August 5, 2016 bonds, resulting in a windfall of as much as 122% over the buy price of ₹3,119. This should put to rest the worries of investors.

This Monday-the redemption of the SGBs issued on August 5, 2016 the RBI will buy back 3.75 tonnes and it will buy back 3.6 tonnes on September 23, 2024 from the second tranche issued on September 23, 2016.

The latest SGB issuance was on February 16, 2024 when the public bought 8 tonnes. So far, the RBI has outstanding 141 tonnes of gold to be redeemed.