Buying gold this Dhanteras? Even SGBs don't offer a great alternative

With Dhanteras around the corner, many people are considering investing in gold in some form or another. While we at Value Research hold a dim view of gold as an investment, we feel that sovereign gold bonds (SGBs) are the best alternative for those adamant about investing in the precious metal because they have two significant advantages: a) the gains are tax-free upon maturity and b) you get 2.5 per cent interest each year. Sounds appealing, right? This is where things can get tricky this time of the year. If you're looking to buy SGBs currently trading on stock exchanges, you might face an unpleasant surprise: they're all trading at a premium (higher than its actual price). When you buy at a premium, you need gold prices to rise by at least that premium amount just to break even. For instance, let's say you invest in SGBs maturing this year. They are currently trading at a 4.9 per cent premium. So, you'd have to pray that gold prices grow 4.9 per cent in the next couple of months so that you can even recover your original investment. Similarly, the bonds maturing in 2029 in the table below are trading at 5 to 11 per cent premium. Even if gold achieves an annualised return of 10 per cent over the next four to five years, your return from

This article was originally published on October 16, 2024.