Investors may opt for gold bonds but unlikely to let go off jewellery

Investors would opt for the gold bonds to be offered by the government, but are not likely to part with their jewellery under its monetisation scheme. The government's efforts at curbing the insatiable demand for gold would only succeed in halting the purchase of the yellow metal for investment purposes to an extent, say experts.

"The gold monetisation scheme (GMS) will not take off as people have an emotional attachment with gold. They aim to get back the same piece of jewellery even when they pledge gold for raising money," says Suresh Sadagopan, founder, Ladder7 Financial Advisories.

Under the GMS, households, temple trusts and others who currently hold large stocks of gold privately will be allowed to deposit their gold with banks and earn an interest rate in their metal accounts. "From a depositor's perspective, as the gold has to be stored in standardised coins, households are unlikely to deposit their jewellery under these schemes," according to Sonal Varma, Neha Saraf and Aman Mohuta of Nomura India.

"The lower ticket size (minimum deposit of 30 grams) and tax exemptions could help attract more depositors and correct some of the faults with the 1999 gold deposit scheme," they said. However, interest rates on gold deposits will need to be much higher than those currently offered (0.75%-1%) to make it an attractive proposition, the analysts said.