Improvise the gold bonds
The Central government seriously needs a good financial adviser with an ear to the ground. Last fortnight it announced a new series of Sovereign Gold bond issues series. The first of the six series bonds will be issued on 17-21 May while the rest will be issued between May and September 2021. The notification (the bonds are to be issued in consultation with the RBI) came on May 12. Could not the government have taken the decision to sell the bonds prior to 14 May or at least publicised that the bonds would be issued on Akshaya Thirthi day? A day it is considered auspicious to buy gold. Had they put the ads on 10-14 May the response would have been much better.
A number of those who might have bought physical gold on this day are educated and informed about the bond issue, and they would have switched to buying gold bonds instead of gold. Had the marketing been left to an institution like BSE and NSE, they would have ensured that the wide chain of brokers created demand for the gold bonds. It could also have sold gold on the online platforms and would probably have been able to create a huge demand.
Undoubtedly, due to Covid restrictions, with many gold shops being shut in places like Mumbai and Madras and many parts of Kerala, demand is muted. While online sales have gone up 5x, the government can, if advised correctly, easily adopt omnichannel distribution, including jewellery shops, and take clear steps to ensure that the bonds would be duly issued. This would give confidence to investors. For those who have a demat account, it would also make sense for investors to receive the bonds directly in the demat account.
Gone are the days when gold was invested solely through unaccounted money. But it is good that the government has adopted a hybrid bond whereby bonds can be issued either in demat or physical form. One of the reasons given is that the rural side, where a huge chunk does invest in gold, will be left out as they do not have a demat account. But at the same time, the government could encourage every subscriber to open a new demat account in the same bank where the account is opened. This would also facilitate trading in the bonds.
Trading in the bonds is key because, while gold bonds are a good idea, getting stuck with them for five to seven years is not. Especially in uncertain times with the shadow of Covid looming large. While technically, the bonds can be traded on the BSE/NSE, no meaningful trade takes place on the exchanges. If physical gold can be used to store value, the same should apply to bonds and in the case of necessity, money ought to instantaneously be received from them.
The marketing has to say that this is as good as holding gold. This can be sorted by appointing an investment banker to act as a jobber to give daily buy and sell quotes. A thriving market in gold bonds will soon give new investors an opportunity to look at this avenue for investment in a different asset class. More than three crore new accounts have been opened in CDSL during the Covid period, with nearly 98 per cent being retail accounts. If investing in gold bonds is seen as a diversification for taking exposure to equity, and investors are educated about it, surely people will buy bonds.
Undoubtedly the government’s intention is noble but that does not solve the problem. Communication and execution have to be matched. Marketing bonds, communicating this through various newspapers, utilising the services of dedicated brokers and creating market makers are steps in the right direction.