Should you buy Sovereign Gold Bonds ?

When should you use Sovereign Gold Bonds?

If you are investing for a goal many years away, say daughter’s marriage, SGBs are perfect. You can simply buy and hold. You can reinvest in a fresh issue when the bond matures. When closer to the goal, you can simply use the proceeds to purchase gold/jewellery.

If you are investing in Sovereign Gold Bonds for diversification, low liquidity can pose challenges. For instance, if you must rebalance portfolios and have to buy/sell bonds in the secondary market, it can a problem (Gold ETFs or gold mutual funds score here). However, in my opinion, this shouldn’t be a problem for most portfolios (especially when you are in the accumulation phase). I assume you can’t forecast gold prices with accuracy. Adding gold bonds to the portfolios is not a problem since RBI comes with fresh issues almost on a monthly basis. Reducing will also not be a problem if you have been adding gold bonds gradually since you can redeem with RBI after 5 years at 6-month intervals. I will suggest SGBs for portfolio diversification too.

Is the price for Gold too high?

I don’t know if the current gold price is too low or too high. I understand this can be a concern since the Gold prices have shot up over the last year.

Personally, I believe gold should do well in times when the central banks around the world are printing money. There is momentum too. However, you can discount my opinion on gold price levels. Such first-order thinking usually does not work with investments.

As an investor, the price should not be too big a concern Assuming you must take incremental exposure to gold for portfolio diversification or any other reason, you can simply stagger your investments just like you do for equity investments. You can expect RBI to come out with such issues for a foreseeable future.