Due to the presence of stamp duty and short term capital gains, the secondary market trading in gold bonds may not really pick up immediately in a big way. There are a few key points that the government will have to address to make listing of gold bonds more productive. Here are some of the benefits of listing of gold bonds…

The government should explore the idea of appointing market makers who can give two-way quotes and provide liquidity in gold bonds.

The investors also need clarity on how interest will be paid on the bonds and how the accrued interest will get built into the price of the gold bond.

Illiquid secondary markets will result in the market price of the gold bond quoting at a huge discount to the spot price of gold, defeating the entire purpose of secondary market listing of gold bonds.

Government should explore giving preferential treatment for demat gold in terms of taxation and definition of capital gains so that the shift from physical gold to demat gold can be managed more effectively. A stamp duty exemption on gold bonds trading will also go a long way in positioning demat gold more favourably with respect to physical gold.

While there are early days to comment on the long term potential of secondary market listing of gold bonds, it will give a greater degree of confidence to the IPO investors. To begin with, this can be instrumental in attracting investors towards demat gold as an investment option. That may be the immediate benefit of listing gold bonds in the secondary market.