MCX Gold trades mildly lower, with silver gains. Should you take a bet on Sovereign Gold Bond?

Gold prices on the Multi Commodity Exchange (MCX) opened on Tuesday at Rs 59,222 per 10 grams and hit an intraday low of Rs 59,171. In the international market, prices hovered around $1,948.55 per troy ounce. Meanwhile, silver opened on Tuesday at Rs 72,400 per kg and hit an intraday low (at the same price) of Rs 72,257 on the MCX. The price hovered around $23.91 per troy ounce in the international market.

Anuj Gupta, Vice President of IIFL Securities, said, “Yesterday gold prices closed marginally lower by 0.36% at Rs 59,140 levels. In the international market, it is trading at $1,947 levels per ounce. Gold is waiting for more cues on US monetary policy this week, taking negative cues after China cut its lending benchmark for the first time in 10 months.”

The dollar index is trading around 102.30, which is at 5-week low level and will support the Gold prices.

He sees technically strong support at Rs 59,000 levels, Rs 58,700 levels, resistance at Rs 59,500 and Rs 59,900 levels. One can buy around Rs 58,900-59,000 levels with a stop loss of Rs 58,700 and for the target of Rs 59,500–59,600 levels. “Gold may test $1,960 levels in international markets,” Gupta added.

Gold eased in yesterday’s session, but volatility remained low as US markets were shut on account of the Juneteenth holiday. Today, in the Asian session, the dollar has gained, which has weighed on most commodities, including precious metals.

Manav Modi, Analyst, Commodity and Currencies, MOFSL, said, “China announced an interest rate cut following several similar measures in recent days in a bid to counter the post-Covid growth slowdown. The PBoC also said it was offering banks 237 billion yuan ($33 billion) through the medium-term lending facility "to maintain reasonable and sufficient liquidity in the banking system". Today, housing numbers from the U.S. will be important to watch and could trigger volatility for most commodities.”

Sovereign Gold Bond 

The Centre has launched Sovereign Gold Bonds (SGBs) for the financial year 2023-24 (FY24). The SGB Scheme 2023-24–Series I will be open for subscription from June 19 to 23 and is priced at Rs 5,926 per gram of gold. You will get a Rs 50 discount if you apply online and pay against the application digitally. The issuance date for Series-I FY24 is June 27.

SGBs offer tax benefits, including exemption from capital gains tax if held until maturity. An investor will get 2.5% interest per annum, payable semi-annually and maturity is linked with the market price of gold. SGBs are held in dematerialised form, which means there are no storage or security concerns.

However, the returns on SGBs are not guaranteed and depend on the prevailing market price of gold at the time of sale. Secondly, there is a lock-in period of 5 years, so you can only exit your investment after then. You must remain invested for eight years if you want the capital gains tax benefit.

Navneet Damani, Senior Vice President at Motilal Oswal Financial Services, said that gold remains a preferred asset. “It continues to be one of the preferred bets in everyone’s portfolio. And if you compare it with the first tranche of sovereign gold bonds, launched about eight years back, it has given an absolute return of 120 per cent plus. If you see the CAGR basis, it has given you about 11 per cent of returns. So, it has been an exciting proposition, and not to forget the 2.5 per cent additional return in terms of the interest coupon delivered every year. So, it's a win-win situation for investors who invested in the SGBs over the last few years. And if you have that kind of a time Horizon, it is one of the bigger and best asset classes to invest in.”