Gold prices in India stand at around ₹94,000-₹1.35 lakh per 10g in January 2026, up sharply amid global uncertainties, making Sovereign Gold Bonds (SGBs) attractive over physical gold for long-term investors due to 2.5% interest and tax exemptions. Short-term dips possible from RBI rate stability, but 2026 outlook bullish to ₹1.28-1.78 lakh.
Overview
Gold acts as an inflation hedge and safe haven, with MCX futures testing ₹1.35 lakh/10g. Physical gold incurs 3% GST and storage costs (1-2%/year), eroding returns. SGBs offer govt-backed 8-year tenure (5-year exit), 2.5% p.a. coupon, and capital gains tax exemption on maturity.
Buy now if horizon 3-5 years; await dips for short-term amid US Fed pauses.
Offer Snapshot
| Aspect | SGBs | Physical Gold |
|---|---|---|
| Price | Issue at spot + premium | Spot + 3% GST + making |
| Returns | Spot + 2.5% interest | Spot appreciation only |
| Costs | No GST/storage | 3% GST + 1% annual |
| Liquidity | Secondary mkt/5-yr exit | Sell anytime (spread 2-5%) |
| Tax | Exempt on maturity | LTCG 12.5% >₹1.25L |
| 2026 Yield | 11-13% total | 10-12% (no interest) |
Latest SGB series maturing 2031-34 available via RBI/banks.
Financials
2025 returns ~25%; 2026 forecast ₹1.28-1.78 lakh/10g (+15-30%). ₹10 lakh SGB buys ~75g, yields ₹18,750 interest + appreciation to ₹1.35 lakh principal = ₹2.3 lakh maturity (2034).
Physical: Same appreciation minus ₹30k GST + storage = lower net. ETFs track spot minus 0.5% expense.
Business Highlights
SGBs issued quarterly by RBI; current yield-to-maturity ~9% factoring rates. Physical suits jewellery/wedding needs but poor investment (80% returns lost to costs).
ETFs/SGB trade on NSE/BSE; digital gold (Paytm MMTC-PAMP) GST-free till sale. Global: $4,700/oz by end-2026.
Use of Proceeds
SGB funds govt borrowing for infra; physical supports mining/jewellers (India 25% global demand). Investor gold hedges rupee depreciation (₹85/USD).
Festive/rural buying spikes Jan-Mar; allocate 5-10% portfolio.
Risks
Rate hikes crash prices (inverse bond relation); US Fed steady at 4.25% caps upside. Rupee strength or equity rally diverts flows.
Physical: Purity fraud, theft; SGBs: 8-year lock-in illiquidity (secondary premium volatile). Geopolitics (US polls) volatile.
What to Watch Next
RBI Feb policy (repo cut to 6%?); Trump tariffs boost haven demand. Track $3,500/oz resistance; buy SGB Tranche Feb 2026.
Domestic: Wedding season dips post-Diwali; monitor ETF inflows ₹20k Cr YTD.
FAQs
Q: Buy physical or SGB now?
A: SGBs for investment (tax-free, interest); physical for consumption.
Q: Gold target end-2026?
A: ₹1.5-1.75 lakh/10g amid inflation/geopolitics.
Q: SGB liquidity?
A: Sell secondary or RBI buyback year 5; premiums 1-3%.
Q: Better than FD?
A: Yes if gold rises >8.5%; hedge portfolio 10%.
Q: ETFs vs SGB?
A: ETFs liquid daily; SGBs superior tax/interest for hold.
Q: Import duty impact?
A: 15% keeps prices elevated; policy cuts could dip 5%.