Reserve Bank of India’s decision to fix gold bond price early has taken sheen out of this instrument
The gold bond scheme, which offers 2.75% per annum interest is the best way to invest in gold for the long term. However, RBI’s decision to fix the gold bond price early has taken the sheen out of this instrument.
RBI fixed the gold bond price at Rs 2,684 per gram, based on the average gold closing price given out by the India Bullion and Jewellers Association (IBJA) between October 26 and 30. Since the gold price is extremely volatile, experts says that this move was a blunder by RBI. “Ideally, the gold bond price should have been set on the issue closing date or the allotment date,” says Chirag Mehta, senior fund manager – alternative investments, Quantum AMC.
We had earlier advised investors not to rush in on the initial days and wait till the last few days of the launch (ie close to Nov 20). Gold price has gone down further since then and is now quoting at Rs 2,545. Since the discount has widened to Rs 140 per gram, or 5.2% now, investors can avoid this tranche and wait for the next one. This is because the investors who are buying gold bonds at 5.2% discount will be forgoing the interest for the first two years.