SGB Twelfth Tranche Opens For Investment: Should You Invest?

Major institutions such as SBI of late have been advocating the subscription to SGB or sovereign gold bonds. These SGBs came into presence as the centre wanted to reduce household's allocation to physical gold and channelize the amount to gold in investment forms. And there is no doubt that analysts and experts have been recommending subscribing to gold in this form.

Now, SGB Tranche 12th for the fiscal year 2020-21 has opened for subscription. Here we tell you given the issue price of Rs. 4662 per gm. Note here those investing through online payment can get Rs. 50 as discount.

Current gold prices:

In the spot market, gold prices are trading at Rs. 45940 per 10 gm (without GST). So, considering that the subscription rate is higher for SGBs.

On the MCX also, gold futures for April too last traded below Rs. 46000 per 10 gm.

The trend in gold prices currently

Globally as well as in India, treasury yield has climbed to a 1-year high on inflationary concerns as liquidity worldwide is paramount. This rise in yield makes bullion less appealing. Hence gold prices are facing pressure. Nonetheless, what is keeping a check on the huge loss or correction in gold prices is the softer dollar and lately the passage of the US economic aid.

So, precisely in the short to medium term, gold prices will move basis the movement of dollar, treasury yield and the pace at which economy recovers. Any economic recovery, uplifts the investor sentiment and money flows into riskier assets.

What should investors do?

For those who do not have the suggested 10-15% allocation, they can still invest in the yellow metal in a staggered way. This is because the long term outlook for gold is bullish only. And currently, if the portfolio has already the suggested allocation they can look out for other viable and higher yielding option such as in equities at a time when the economy is seeing resilience with the third quarter GDP data coming in better.

But, investors shall be better off still timing their investment, as gold in the near to medium term is expected to correct more, so price-wise the decided issue price for SGB twelfth tranches shall not be the good entry point. But for minor allocation, disregarding few hundreds you can always go for investing in the precious yellow metal that always payso-off in uncertainties on its quality of being the safest safe-haven and also is able to beat inflation.

"Investment in paper gold is the best and the most effective way of investing in the yellow metal. Gold should have an allocation of 5-20 per cent of any portfolio depending on the risk appetite," suggests Nish Bhatt, founder & chief executive officer at Millwood Kane International, an investment consulting firm.

Other good enough reasons to consider investment in SGBs

• Interest rate at the rate of 2.5% percent payable semi-annual
• No capital gains tax on redemption at maturity i.e. after 8 years
• No storage cost
• No other hassles such as safety concern, issue of theft etc.

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Outlook on Gold Prices

"Gold tumbled 3% to an eight-month low on Friday en route to its worst month since November 2016. Prices have been falling gradually in the last few weeks as brighter economic outlook and inflation fears propped up US Treasury yields, eroding bullion's safe-haven status. Therefore, we expect gold prices to remain weak towards Rs 45,200 level in the short-term," says Raj Deepak Singh, Research Analyst, ICICI Securities.