Sovereign Gold Bond (SGB) 2023-2024 Series IV opened for subscription: Is it the right time to invest in this government security?

Sovereign Gold Bond scheme: Sovereign Gold Bond (SGB) 2023-2024 Series IV is currently open for subscription, and the scheme will run until February 16, i.e., Friday. For the unversed, the government launched SGBs in 2015 to channel investments made in physical gold into financial savings. 

The investor can subscribe to the SGB at Rs 6,263 per gram, while investors willing to invest through the online route will be eligible for a discount of Rs 50 per gram. The issue price is at a slightly discounted price in comparison to today’s gold price of 999 purity, which is Rs 6,294 per gram.

Gold prices in the international markets were little changed and held steady at $2018.71 per ounce, as of 0424 GMT, ahead of US inflation data that will offer a perspective on the Fed’s timing of the rate cut. Mirroring gold prices globally, the April gold futures contract on the MCX traded 0.02 per cent higher at Rs 6,209 per 10 gm.

As the rate cut timing by the US central bank remains uncertain, gold may likely see a correction in due course as dollar gains will curb gains in the yellow metal price in the short term.

Nonetheless, experts state that as SGBs are invested in from a long-term perspective, they can be betted upon at the current price, and investors need not wait for the correction in the gold price.

Experts' Take

Sachin Kothari, Director at Augmont Gold For All, maintains that amid sticky inflation, the US Federal Reserve has turned hawkish, and the likelihood of a cut has shifted to May. This hawkishness is negative for precious metals. On the positive side, precious metals are getting safe-haven bids from emerging geopolitical risks arising from the Middle East.

So gold prices are likely to stay above Rs 61,000 shortly and gradually rise after March. I think this is the right time to accumulate gold, as prices might be trading significantly higher until the next tranche of SGB is announced in May or June, the expert added.

Echoing a similar stance, Anuj Gupta, Head of Commodities & Currencies at HDFC Securities, said, "As the long-term trend of gold looks positive, this is an opportune time for investors to invest for the long term in gold.”

Jateen Trivedi, VP Research Analyst at LKP Securities, expects gold prices to scale to Rs 65,000–66,000 per 10 gm by year-end. Keeping an eye on key economic indicators like CPI and GDP employment data will provide insights for investors to capitalise on buying opportunities in the precious metal.

Further, the analyst added that a positive rally will be seen once there is a dovish tone along with a clear road map on interest rate cuts.

How did the first SGB that matured in November 2023 reward investors, and will the momentum continue?

As per RBI data, 94 per cent of investors were holding the bond till maturity and got a whopping return of 150 per cent in eight years, which is equivalent to more than 12 per cent CAGR (compound annual growth rate).

The second tranche of SGB, which was issued on February 8, 2016, also matured last week, with similar kinds of returns. "If we see historical long-term returns of gold in the last 20–25 years, gold has been delivering a 12 per cent CAGR return, so we can expect similar returns in other tranches as well down the line," noted Kothari.

HDFC Securities' Gupta also held a similar view and expects gold SGBs to yield a similar kind of return going forward.

While past returns on sovereign gold bonds (SGBs) have been promising, future returns may vary depending on factors like prevailing gold prices and the terms of future issuances. Investors can consider participating in upcoming SGB issuances at opportune moments to maximise returns while remaining mindful of market conditions and gold price fluctuations, added Trivedi.