Gold investors across India seem to be perturbed with a phenomenon-- the August Sovereign Gold Bond turning costlier than physical gold.
The August SGB is priced at Rs 4,740 per gram inclusive of a Rs 50 discount for digital payments. Markets crashed in the last seven days bringing bullion prices to levels of Rs 46,000. MCX Gold futures for August expiry were trading at Rs 46,350 per ten grams while MCX Petal was reported at Rs 4631.
The phenomenon of physical gold costlier than a Sovereign Gold Bond is not the first time for markets.
What do you do when physical Gold is available at Rs 4,600 levels but the same commodity is priced costlier in paper-format? Of course, any sensible investor will opt for the cheaper variant. Correct? Actually, No!
Physical Gold and SGB may appear similar as Apples and Mangoes (both are fruits). Just like fruits, both are related to Gold. But, the valuation is not alike. If you ask why, here are two simple reasons:
The price difference in SGB is attributed to how the subscription cost is calculated. The RBI-administered SGB is priced on the basis of a simple average of the price on the last three business days of the week preceding the subscription. The price is based on the retail price tracked by the India Bullion Jewellers Association (IBJA).
There is a likelihood that the Gold market value appreciates or depreciates during the SGB subscription window. However, SGB certainly holds value.
Sensible investors will take cautious bets when markets shower such surprises. Here's a look at some suggestions that you can evaluate:
This article is informative in nature and should not be construed as an investment offer. Readers are advised to seek the personalized opinion of a SEBI registered financial analyst for better insights.