All About Gold Bonds:

1] There are 2 types of assets:

(a) government controlled paper assets

(b) Real Assets (which the government can’t control or would have a limited control) [

2] Currency (INR, USD) is 100% controlled by the government– they decide how much to circulate, when and when to kill the supply.

[3] Real Estate if you buy from CURRENCY (the currency goes out of circulation) and you own a piece of property, on which the government has limited control (so this is a fixed supply, real asset)

[4] Gold used to be similar: but, legally you can’t keep gold too much in physical format — plus buying gold in physical format is bad (lot of commissions, storage concerns etc).

[5] Gold ‘Bond’ are government issues BONDS where returns are= gold prices +2.5% on initial investment. So seems like a great deal

[6] Now here is the catch: Your maturity period is more than 5 years. So the money you are locking into a gold bond is fairly long-term

[7] The returns you make primarily depend on what the price of gold would be. In the last 5 years the Gold prices have doubles because a lot of macro changes happened: China real estate collapse, Canada, Russia millionaire, Middle east people buying it If the world is less peaceful, Gold prices generally rise.

[8] But, over a long period, the average return for gold is very similar to any commodity. It would not be more than 4% CAGR (add 2.5%) on gold bond = 6.5%

[9] More importantly, the major supply and demand (and therefore the price of gold) is dependent on the government. Major chunk of gold in the world is bought by governments. [

10] So to cut the long story short: I don’t invest in Gold/SGBs. The returns for me are not sensible. I rather put that money in another fixed supply asset like Real Estate. I also own Bitcoin– but that is a discussion for a different day.

[11] A better alternate (statistically speaking) to Gold Bond investing would be CORPORATE bonds. If you pick AA+ (or A category bonds), the default risk is low. The maturity period is faster. And, you are likely to make 8-11% depending on the specific bond you are buying.

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Thanks !

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