Investing in Gold: Understanding Sovereign Gold Bonds in the US
Sovereign Gold Bonds (SGBs) are government-issued bonds in which investors can invest in gold in a paperless form. They were first introduced in India in 2015 as a way for investors to invest in gold without having to physically own the metal.
The bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government of India and are denominated in grams of gold. They are sold at a price that includes a small premium over the prevailing market price of gold, and the bond's value is linked to the price of gold.
Investors can purchase SGBs through banks, stockbrokers, and designated post offices. The bonds have a maturity period of 8 years, with an option to exit after 5 years on the interest payment dates. Interest on the bonds is paid semi-annually at a fixed rate, currently 2.5% per annum.
SGBs offer a number of benefits for investors, including capital appreciation and regular income through the interest payments. They also provide a hedge against inflation, as the value of the bond is linked to the price of gold, which has historically maintained its purchasing power over time.
SGBs are also eligible for use as collateral for loans and for trading in the stock market. They also have tax benefits for investors, as the interest earned on the bonds is tax-free, and the capital gains tax on redemption is also waived if held till maturity.
SGBs are not available in the US, but similar financial instrument can be found in other countries such as Royal Canadian Mint, Perth Mint and others.