Gold bond demand rises 4-fold in FY21
„Over 27.86 tonnes of metal purchased
Despite rising prices of the yellow metal, sovereign gold bond purchases have grown four-fold in this fiscal comapred to the previous year.
In the 10 tranches of sovereign gold bonds issued in FY21 till January, investors purchased a total of 27.86 tonnes. This marks a more than four-fold increase in purchases against 6.13 tonnes bought by investors in FY20. This fiscal has accounted for close to half of the total purchases made since the launch of gold bonds in 2015.
In these six years, investors have purchased a total of 58.8 tonnes of gold through the primary market in the form of bonds. Each of the 10 issues of gold bonds in FY21 saw investors purchasing more than one tonne of gold. In the fourth series, investors bought more than four tonnes and in the fifth series, more than six tonnes.
Prior to FY21, only once had the aggregate purchases moved up beyond one tonne in a series.
The issue price of gold bonds remained above Rs 4,500 per gm for all the series in FY21. The issue price was the highest in the fifth series at Rs 5,334 per gm and the same series saw the largest purchase at 6.3 tonnes. This shows that higher prices were not a deterrent for gold bond buyers. In fact, the demand was higher when prices went up.
According to Somasundaram P. R., managing director, India, World Gold Council, several investors bet on the bullish trend in gold during the pandemic. “While there are pockets of distress due to Covid-19, there are pockets of surplus as well. People who have uninterrupted income have not spent much during the lockdown time on vacations and luxuries and they are left with investible surplus,” he pointed out. This surplus found its way into select investment instruments, including gold, he added.
Increased investor appetite for gold had reflected in the demand for gold ETFs as well. Gold ETFs largely saw inflows during most of the months in FY21. Despite the lockdown in the June quarter, investment demand managed to stay just 11 per cent lower in 2020 compared with a 42 per cent drop in jewellery demand.
Last month, investors put in Rs 625 crore in gold exchange traded funds (ETFs), which was 45 per cent higher than the preceding month. The inflow pushed the asset base of gold funds by 22 per cent to Rs 14,481 crore at the end of January from Rs 14,174 crore at the end of December, data from the Association of Mutual Funds in India showed.
Himanshu Srivastava, associate director manager research, Morningstar India said the gold prices have come-off its all-time highs touched in August last year. The month of January also saw fair bit of correction in its prices.
"This, along with expectation that gold may do well going ahead provided a good buying opportunity to investors, which resulted in net inflows for the category in January."
According to him, gold functions as a strategic asset in an investor's portfolio, given its ability to act as an effective diversifier and alleviate losses during tough market conditions.