Gold Monetization Scheme Decoded

Hello Aspirants,
Welcome to D2G’s. As you know there are many schemes launched by Government of India for different purposes and we need to keep updated ourselves to reach our goal in competitive exams. This article can be asked in Group Discussion round. It is All You Need To Know About Gold Monetization Scheme. Happy Reading folks.


Gold Monetization Scheme

The Gold Monetization scheme(GMS) Gold Monetization scheme(GMS) is a welcome step initiated by the Government of India to unlock the unused and idle gold lying in households and institutions and bring them into mainstream and release the capital locked in for use in the economy for its development. Investment in gold has become something of a world wide opportunity, with people looking to invest in precious metals by checking out gold ira companies, for example, and what they can offer, so it is no wonder that this has become very popular.

Let us take the example of the system of an IRA in the United States of America to get a better idea about it. A personal retirement account is a tax-advantaged account that helps individuals save for retirement. IRAs are available in various forms, including traditional IRAs, Roth IRAs, and gold IRAs. An IRA containing gold or other precious metals is a great way for investors to stash their money. IRAs containing gold or other precious metals must be held separately from regular accounts. These retirement accounts that hold gold are also called precious metals IRAs. IRAs can be set up with pretax funds or as Roth IRAs, which are bought with post-tax dollars. They are different from other IRAs in that they require the purchase and storage of physical gold. Therefore, gold IRAs must be managed by a custodian, which is usually a bank or brokerage firm. In a traditional IRA, investors can invest only in stocks, mutual funds, and other traditional investments. The Internal Revenue Service (IRS) allows holders of self-directed IRA accounts to purchase gold bars and coins that are minted from gold or other approved precious metals, such as silver, platinum, or palladium. Gold IRAs cannot be set up with traditional custodians like conventional brokers as they do not offer such specialized accounts. You may need to find a custodian or firm that can handle all the documentation and reporting necessary to maintain a gold IRA if you are interested in setting up this kind of account. In the case that you would like to know more about how it works, blogs like might prove helpful in providing the correct information.

Nonetheless, coming back to the topic of the Indian sector, the government announced the gold monetization scheme on 15 September to mobilize gold held by households and institutions and facilitate its use for productive purposes and, in the long run, to reduce India’s reliance on the import of gold. Holdings of gold in the country are estimated at 20,000 tones.

Target of the Gold Bond Scheme:

  • To mobilize the idle Gold in the country and put it into productive use.
  • To provide the customers an opportunity to earn interest on their idle Gold holdings.
  • To reduce reliance on import of Gold over time to meet the demand.
  • To provide a fillip to the jewellery sector in the country by making Gold available as raw material on loan from the banks.

Form of Gold Scheme:
The Gold scheme does not give the visual pleasure of physical gold. But If you wish, you can have the gold bond in the paper format. Otherwise, the gold bond is also available in Demat form. You can keep it into your Demat account.

How the Gold Monetization Scheme Works?

  1. The scheme is meant to mobilize gold held by domestic households and institutions.
  2. The scheme will initially be launched at a few places because the government will have to first set-up infrastructure for facilitating easy and secure handing of gold.
  3. Gold collected from customers will first be cleaned and measured at test centres, it would then be melted to test for purity. After the tests, customer can either deposit the gold for a fee or take it back after paying a nominal fee.
  4. The minimum quantity of gold for that a customer can bring is proposed to be set at 30 grams.
  5. Those willing to deposit the gold will be given a certificate mentioning the amount and purity of the deposited gold. Banks will open a โ€˜Gold Savings Account’ on the basis of such certificates.
  6. Customers will be paid interest on their savings account after 30/60 days of account opening. The amount of interest rate to be given is proposed to be left to the banks to decide.
  7. Both principal and interest will be paid to the depositors of gold.
  8. The tenure of the deposit will be minimum 1 year and in multiples of one year. Like a fixed deposit, breaking of locking period will be allowed.
  9. Gold savings account will be exempt from capital gains tax, wealth tax and income tax.

Benefit of Gold Bond Scheme to Customer

There is a common perception that gold never fails. It is believed that the value of gold always increases with the general prices.

  • The value of the investment in the gold bond scheme would increase with the increase in gold prices.
  • The gold bond gives a better return than the physical gold as it gives interest as well.
  • You need not to worry about the safekeeping as a gold bond can be kept in digital form.
  • There is no chance of cheating or impurities in the gold bond. You would always get 100% pure gold bond, which will give you original value, always.
  • You will save the expenses of locker as a gold bond can be kept in your house or Demat account.

Interest Rate:

The interest rate on the gold bonds at 2.75 per cent being less than the bank rate of 6.75 per cent the RBI gains straight away. This is the wisest, most risk-free and profitable way of monetizing the gold with RBI without losing the gold stock.


The value of the gold bond scheme is subject to the volatility of the gold. It can give negative return if the prices of gold go down. To reduce this volatility, the government is issuing the long term gold bond. The tenure of the gold bond scheme is 8 years. But you have the option to exit after 5 years. The bond can be extended after the maturity period. This facility is given to avoid the unfavorable market condition at the time of maturity. The gold bond can be extended for a period of 3 years.

Denomination of Gold Bond scheme:

The normal bonds are issued at the face value of 100 and 1000. But a gold bond is different. It is not issued at the face value of 100 or 1000. Instead, the gold bond is issued at fixed gold weights. The denomination of gold bond is 1, 5, 10, 50, and 100gm gold.

Loan Against Gold Bond:

If the need arises, you can also take a loan from the bank against the gold bond. The bond paper can be used as the collateral for the loan. In this regard, a gold bond is similar to the National saving certificate of the post office. The loan against gold bond is on the terms of the gold loan. The loan to value ratio is the same as set for the gold loan by the RBI.

Benefit of Gold Bond To the Government:

Nowadays, many people tend to invest in real gold by seeking out options to buy real gold online. Gold investment is a worthwhile investment that can yield great returns in the future. With companies like Nuggets By Grant and similar ones making the whole process easier, it is no wonder the public is attracted to them. The government, meanwhile, would be very happy with a low-interest rate on borrowing. It can save much if someone gives money to the government at the rate of 2.75%. People prefer to put money in bank FD instead of lending to the government at such a low-interest rate. But, the sovereign gold bond challenge this logic.

  • People already invest in the physical gold considering it a safe and sound investment.
  • The people will get back the redemption value of gold bond according to the prevailing interest rate. Most people consider gold as all weather friend. Hence, if they can purchase gold, why not gold bond? Both of them would give similar returns.
  • The gold bond interest rate which is an extra profit.

Hence, People subscribe to the gold bond and the government gets money at the low interest of 2.75%. Also, the gold bond will reduce the gold import. The crude and gold are the biggest import of India. Every year almost 300-ton gold imported for the investment. The gold bond can reduce this import bill and save the precious dollars.

The given Diagrammatic flow chart below shows how The Gold Monetization Scheme Works for your better understanding.


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