Are government gold monetisation schemes a hard sell?

The fourth tranche of Sovereign Gold Scheme numbers have started pouring in where BSE has collected 159 kilograms (KG) while NSE has seen higher interest at 341 KGs worth Rs 106 crore. While the exchanges have collected half a tonne of gold, the numbers from the banks and post offices are still awaited.

The last three tranches have seen investors buy near 4.9 tons gold. India has imported around 800-900 tons in recent years. Though this year, until time, Indian imports are approximately 200 tons and might end the year with just about 500-600 tons.

The Sovereign Gold bond (SGB) scheme was launched amidst a lot of road shows, media promotions and changes in its 4^th tranche. The minimum amount to invest was revised down to 1 gram to encourage participation from investors who wanted to own small denominations. SGB is paper gold. It is over and above the gold price. One stands to earn a fixed interest rate from it as well.

The collected number seems small in comparison to the work that the exchanges put across. NSE had introduced new initiatives like bid verification and bid withdrawal facilities for investors as also bulk upload facility similar to existing IPO bidding format. BSE in the meanwhile has assured to pass 1 percent commission to members to promote participation and even made the bidding session available overnight on BSE SGB platform.

The monetary returns we have seen on gold and gold funds and mining companies have been the main push for investors for buying gold in any form. The SGB has been trading at a premium to the spot prices in India. And, because it’s a government paper, the trust and comfort level among investors is high.

The other ongoing scheme - Gold Monetization Scheme (GMS) is where one gives their idle gold to the government and earn interest on that. While, gold can be bought as low as 1 GM in SGB, the GMS requires one to bring a minimum 30 GMs of 995 fineness. GMS has been able to accumulate just about 1485 KGs till time as per data available for the 20,000 tons that Indian households together are calculated to be holding.

In recent months, as the prices have been rising, the scrap sales have seen an increase. Investors and individuals have been selling their physical gold holdings to make use of higher prices or for want of money. That is immediate cash for them. Something that doesn’t happen under GMS. It has a lock-in period and needs you to have valid identifications and then approach collection and purity centers, get your gold melted, assessed and then deposit.