The government introduced the Sovereign Gold Bond ( SGB) scheme in order to save foreign exchange that was being spent on gold imports.
India has historically been the largest importer and consumer of gold. Indian people are smart, they always held their wealth in the form of gold.
Since India does not manufacture any gold, all of it has to be imported. In times past we paid for it with pepper, and other valuable things for which India was famous. Nowadays, we have to pay for it with precious foreign exchange.
So the government said, give us your money, and we will give you a certificate for an equivalent amount of gold in grams, that you can redeem eight years later for the prevailing gold price at that point in time. We will make it tax free on redemption they said. But the public didn't bite, so they said we will give you an additional 2.5 percent interest per annum. They called it SGBs.
They kept coming up with issue after issue and the public bought the SGBs. Everything looked good for a while, till gold prices suddenly started shooting up.
Madam Nirmala cannot harangue gold into submission, like she tries to do with all those who trouble her. Both Parakala and gold are outside her control, though she may terrorise the rest of the world.
It is not just that gold prices are outside her control, it is also that there is no certainty about future prices. So the government stopped issuing SGBs a few months back. Word is out that they may even offer a premature redemption window. I wouldn't be surprised if this is accompanied by an unsaid threat that the capital exemption on redemption may be taken away soon.
In any case, the best way to hold gold is away from greedy eyes, and governments are always most greedy and untrustworthy.
Expect a spate of articles in the financial press running down gold and saying how those who buy gold are unpatriotic, anti development, anti poor and in general enemies of civilised society.
When that happens it is time to buy more. Physical gold, mind it!
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