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21.3%

a year: what the 2018 gold bond sold at 2.5% really cost

2018's 2.5% gold bond cost the government 21% a year

Economy No. 91 23 October 2026 · 1 min read · By

Today the government repays its October 2018 gold bond at ₹14,425 a gram, the RBI says. It raised ₹3,146 a gram, so it pays back 4.59x. The bond was sold as paying 2.5% a year.

That 2.5% was never the real cost. The bond repays whatever a gram of gold is worth on the day. Over 8 years, interest came to ₹629 a gram; the rise in the gold price added ₹11,279, or 75% of all it paid out.

Put together, the government paid about 21.3% a year for this money. On 19 October 2018, while the gold bond was on sale, it sold an ordinary bond due in 2026 at 7.97%. So the gold bond cost it 2.7x as much a year.

Holders got the other side, 4.59x their money, the gain tax free for individuals at maturity. The 2.5% label fixed only the interest. The government carried the gold price for 8 years, and gold ran.

Gold, not the 2.5% interest, made the 2018 gold bond's bill

What the government raised and paid out on each gram of its October 2018 gold bond over 8 years, in ₹. The gold price rise is 75% of the payout.

A waterfall from ₹3,146 raised a gram in October 2018, up by ₹629 of interest and by ₹11,279 from the rise in the gold price, to ₹15,054 paid out a gram in October 2026.

RBI: SGB 2018-19 Series II issue price, scheme terms and final redemption price · Oct 2018 to Oct 2026

The 2018 gold bond cost the government 21.3% a year

What the government paid a year on money borrowed in October 2018, in %. The gold bond, sold as paying 2.5%, cost 2.7x an ordinary bond sold that week.

% A YEAR

Gold bond's label rate
Ordinary bond, same week
Gold bond's full cost
3 bars: the gold bond's 2.5% interest rate, 7.97% on a government bond due in 2026 sold on 19 October 2018, and 21.3% a year as the gold bond's full cost once its repayment at the gold price is counted.

2.7x the ordinary bond's 7.97%

Ordinary bond: 7.59% GS 2026, auctioned 19 Oct 2018. Full cost: the yearly yield on ₹3,146 raised a gram, 2.5% interest half-yearly and ₹14,425 repaid after 8 years.

RBI: SGB 2018-19 scheme terms, issue price and final redemption price; Government Stock auction results, 19 Oct 2018 · Oct 2018 to Oct 2026

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