After the fall in gold prices due to the customs duty cut announced in the 2024 budget, sovereign gold bond investors are shocked, and many have written to us to ask if these investments make sense anymore.
There is a lot of speculation as to why the customs duty was cut – “this was done to reduce the amount to be paid out to investors when these bonds mature*, “this was done to launch new bonds at attractive prices”. There is also speculation that the government’s SBG debt has become so large that there may be no future bond issues.
* A careful calculation should also account for the loss the government will incur when it imports gold.
We have no idea or opinion about why this was done and what the future holds. However, we will say this much (and this is something we have been saying repeatedly).
- Sovereign Gold Bonds or Multi-Asset Funds: Which should I use for gold diversification?
- Are investors buying Sovereign Gold Bonds for the wrong reasons?
- Can I use Sovereign Gold Bonds to diversify my portfolio?
- Why are you against using Sovereign Gold Bonds in an investment portfolio?
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- There is no need to invest in gold in the name of “portfolio diversification.” See: Can I add 10-20% gold to my 15-year investment portfolio?
- Gold is not a hedge against inflation.
- If you wish to track the price of gold for “diversification” or for returns, use gold funds (not SGBs or gold ETFs). You need a gold instrument that is liquid for free redemptions and purchases. SGBs are not as liquid. Gold ETFs suffer from price-nav deviations.
- We reiterate that gold is an unnecessary asset. If you must have it in your portfolio, use multi-asset funds. See: Sovereign Gold Bonds or Multi-Asset Funds: Which should I use for gold diversification?
- If you wish to track the price of gold for a future gold purchase, use SGBs. For this use, SGBs are risk-free. Even here, if the future purchase is more than ten years away, equity + fixed income will do the job.
- Never buy SGBs only because they are tax-free.
So do Sovereign Gold Bond investments make sense Anymore?”
They never did (unless you wish to use them for a future gold purchase)! Please use this budget 2024 experience to recognise that they are unsuitable for chasing returns or “diversification” and avoid them.
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