Record demand for sovereign gold bonds despite price rise
₹6,914 crore in the second tranche of the current fiscal year despite high gold prices. Rising global macro uncertainty and high retail price inflation back home, amid rising crude oil prices, are driving investor demand, according to a banker and a senior broking official.
The latest issuance on 20 September marked the first instance of demand growth exceeding 10% since the bonds were first sold in November 2015 in any tranche. After this sale, the cumulative outstanding bonds managed by the Reserve Bank of India (RBI) on behalf of the government rose to 120.6 tonnes from 108.95 tonnes as of the first bond issuance of the current fiscal on 27 June.
“Growing uncertainty in the global macroeconomic environment, high interest rates in the US, amid persistently high inflation, and a weaker rupee have kept gold prices elevated and increased demand for the bonds," said Shekhar Bhandari, president of global transaction banking at Kotak Mahindra Bank. Bhandari expects the demand for bonds to remain robust given gold’s status as an “inflation hedge" and “safe-haven" asset.
The cumulative value of bonds subscribed—the government’s liability—stands at ₹56,342 crore against ₹24,318 crore of net assets under management by mutual funds’ gold ETF schemes as of August end. “Retail and HNI interest in SGBs has spurted as investors are becoming increasingly aware of the benefits of the interest component of the SGBs," said Naveen Mathur, director (commodities & currencies), Anand Rathi Share And Stock Brokers.
“Gold price has remained more or less steady in line with international gold amid crude prices rising sharply over the same period." SGBs come with a coupon rate of 2.5% per annum, payable semiannually, on the issue price. This is
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