Sovereign gold bond’s 10th series open till March 4

In the tenth tranche of SGB offering in this financial year, investors will have to pay 5,059 per gram of gold after the 50 per gram discount for digital payments. This is 323 per gram or 6.82% higher than 4,736 per gram they paid for in the previous issue in January.

Gold prices have gained 7.8% in the last one year in rupee terms, while in dollar terms, they are up 9.5%.

“After a long consolidation since March 2020, gold prices are now on an upward trajectory. They could touch 63,000 per 10 grams in the next six months to a year,” says Pushkaraj Kanitkar, VP (Research), GEPL Capital. Over a 2 year time frame, Kanitkar expects gold prices to reach 83,000 per 10 gram.

Geopolitical tensions between Russia and Ukraine are likely to continue, with the West levying fresh sanctions on Russia for invading Ukraine and President Vladimir Putin put his country’s nuclear deterrent on high alert.

Analysts believe if this conflict is extended, there will be more money printing to fund military actions, energy prices will move higher as supplies from major exporter Russia get hit. “All these events will fan the fire of already high inflation, take a toll on slowing economic growth, spur market volatility and risk aversion,” says Chirag Mehta, senior fund manager, Quantum MF.

Mehta believes while this environment will be supportive of gold prices, it will eventually clash with the Fed’s tightening cycle, which is expected to keep gold prices in check.

Financial planners believe gold will shield portfolios against rising inflation, geopolitical tensions and believe investors should allocate about 10% of their portfolios to the yellow metal.

“While gold has risen on geopolitical concerns, another near-term trigger for upward trajectory is the proposed rate hikes,” says Amol Joshi, founder, Plan Rupee.

Wealth managers believe sovereign gold bonds are one of the most efficient ways to own gold for investors with a time frame upward of 5 years and not requiring intermittent liquidity.

These bonds pay an interest of 2.50% per annum, an added benefit to the investors. On the other hand investors have to pay making charges for physical gold or expense ratio in a gold ETF every year between 50-100 basis points. Also, there is no capital gains tax payable if the sovereign gold bonds are held till maturity, while ETFs held for more than three years attract capital gains tax (with indexation benefits).