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India offers gold bonds at discount in hope of boosting sales

Section: Daily Dispatches

India's Gold Bonds Seen Luring Investors in Search of Safe Haven

By Rejendra Jadhav and Suvashree Choudhury
Monday, January 18, 2016

MUMBAI -- The second tranche of India's sovereign gold bonds, whose sale began today, is likely to draw good response from investors, as they are priced below market rates for the metal and sharemarket turmoil spurs investors to diversify holdings.

India plans to sell 150 billion rupees ($2.22 billion) in gold bonds in the fiscal year ending March 31 as it seeks to wean investors off physical gold and contain the outflow of foreign exchange spent on imports. ...

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The price of gold has risen 4 percent so far in 2016, while India's benchmark has fallen nearly 7 percent.

"Given the correction in the stock market, interest is shifting in favor of gold," said Harish Galipelli, head of commodities and currencies at Inditrade Derivatives and Commodities. "Investors are looking for safe-haven assets. This tranche will receive better response than the first tranche."

The Reserve Bank of India has fixed the issue price of the bonds, which will be sold until Friday, at 26,000 rupees per 10 grams, below the current market rate of nearly 26,050 rupees.

The bonds, linked to the price of bullion, carry an annual interest of 2.75 percent and allow consumers to invest in "paper" gold rather than physical gold.

The first tranche debuted last November to lukewarm response, as it was priced nearly 5 percent above the market. At the time, the stock market also promised better returns, with the price of gold falling in anticipation of a U.S. rate hike.

"Given that currently risk appetite is weak and bank interest rates are also falling, demand for gold bonds in the second tranche might be better," said Siddhartha Sanyal, an India economist at Barclays. ...

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