Why is Gold a safe instrument?
Last updated: 06 Jul, 2020 | 05:51 pm
- Central banks and governments around the world are scrambling to prevent their economies from going into a recession.
- Primary way to do this is to extend credit to companies so that they can stay afloat to tide over this crisis and keep people employed.
- The US has already extended an economic stimulus of over $2 Trillion with much more to come. This money printing and piling up of debt on countries increases the risk of their currencies and treasury as the higher debt levels increases risk of default.
This devaluation and volatility of currencies and increasing Sovereign debt vaults Gold to become a flight to safety investment. Countries maintain reserves of gold to support their currency volatility and hedge their risks. With Balance sheets across the world expanding (more debt levels), these reserves are more important than ever. The chart below compares India's gold reserves with some other major economies.
All this adds up to a favourable medium term environment for Gold prices and a great way to take exposure is via the Sovereign Gold Bond route issued by RBI on behalf of the Government of India which give you a fixed coupon rate as well as tax advantages!
Salient features and benefits of SGBs
- The latest tranche of sovereign gold bonds (2020-21 - Series IV) opens for subscription from tomorrow (6th July). The issue will close on 10th July, 2020
- Fixed price of Rs 4,852 per gram and an attractive Rs 50 discount for online application
- Coupon rate of 2.5% per year
- Tax-free capital gains at maturity. This is an exclusive benefit available on gold bonds
- Minimum investment at just one gram
- No GST, (a 3% GST is levied on gold charges)
Reach out to your personal family wealth office to help you invest in SGBs! Click on the Ask Advisor button below!