With positive gold outlook, Sovereign Gold Bond looks a good investment option

Gold prices in the last two years have witnessed a phenomenal run.

On the last day of issuance of the Sovereign Gold Bond (SGB) Series V for the year 2020-21 on Friday, August 7, 2020, the gold prices breached Rs 56,000 per 10 gram level, surpassing the SGB issue price by over Rs 3,000 per 10 gram. The issue price of the current SGB Series is Rs 5,334 per gram for offline investors and Rs 5,284 per gram for online investors.

Gold prices in the last two years have witnessed a phenomenal run, rising around 75 per cent and continuing to scale new highs, with the Reserve Bank of India (RBI) taking an aggressive stance to push unprecedented amounts of liquidity by keeping the key interest rates low.

“Gold and Silver have been best performing assets so far this year with over 40 per cent and 50 per cent returns respectively so far this year,” said Kishore Narne, Head – Commodity & Currency, Motilal Oswal Financial Services.

The trade-war concerns and rising Covid-19 infections and a threat of second wave infections are also contributing to the up-trend in the prices of the precious metal as safe haven demand gets stronger due to the slowing global economic growth along with lingering Geo-political uncertainty.

“Slowing jewellery demand is more than replaced by investor demand in ETFs as well as coin and bar sales. We continue to be bullish on Gold with potential targets between Rs 65,000 to Rs 68,000 per 10gms over the next 12-15 month period,” Narne added.

Not only just a higher buying interest during the current market turmoil, but Gold has been a long term performing asset class, especially in the Indian context.

According to a Research Report by ICICI Direct, Gold seems to be an appropriately placed asset class for global investors due to the unprecedented uncertainty and risk aversion environment.

“We maintain our positive outlook on gold prices given uncertain outlook on global growth, volatility in other asset classes viz. global equity, commodity and currency markets, massive stimulus measures announced by major central bankers, extremely low interest rates environment & outlook, US-China trade war and increased buying interest of global central bankers,” said the Report.

With the underlying gold holding, SGBs offer a good alternative to take exposure to gold as it offers additional interest along with security.

Moreover, SGB investors don’t have to incur annual recurring expenses to hire lockers and pay premiums for insurance to keep the gold holding safe.

Also, with tax benefits on capital gains arising on redemption, the Sovereign Gold Bond Scheme looks like a good investment option.