Gold’s unprecedented rally: Gold Monetisation Scheme, Sovereign Gold Bonds discontinued; check key details

After discontinuing Sovereign Gold Bonds from the financial year 2025-26, the Union government has now also discontinued the Gold Monetisation Scheme for medium-term and long-term deposits effective March 26, 2025.

The government has ended the scheme amid soaring gold prices as the ₹1 lakh/10 gm mark isn’t entirely a far-fetched scenario for the yellow metal anymore.

“Based on the examination of the performance of the Gold Monetisation Scheme (GMS) and evolving market conditions, it has been decided to discontinue the Medium Term and Long Term Government Deposit (MLTGD) components of the GMS w.e.f. March 26, 2025,” the finance ministry said in a release.

However, at the discretion of banks, short-term bank deposits are still allowed under the GMS.

“…the Short-Term Bank Deposits (STBD) offered by the banks under GMS shall continue at the discretion of the individual banks based on the commercial viability as assessed by them. The detailed guidelines of the Reserve Bank in this regard shall follow,” the release added.

Gold prices on April 1 hit their lifetime high of ₹94,150 per 10 gm (24K, 99.9% purity) in the national capital, a PTI report said citing the All India Sarafa Association.

What is the Gold Monetisation Scheme?

Launched in September 2015, the Gold Monetisation Scheme (GMS) allowed individuals to gain interest by depositing their gold to banks to sell or store it. As per reports, Indians hold nearly 30,000 tonnes of gold in the form of bars, coins and jewellery. The government launched the scheme to make use of idle gold by bringing it into the economy alongside reducing India’s reliance on gold imports.

Under the GMS, gold deposited by individuals, in whatever form available, was checked for purity and then melted by a Collection and Purity Testing Center (CPTC). The gold was then converted into tradable gold bars. Any impurities found in the precious metal were deducted from the final amount of gold. The total amount was then credited to the depositor's gold account. The depositors had the opportunity to save storage charges and earn interest on idle gold.

However, this scheme wasn’t entirely successful due to several challenges.

• Indians consider gold jewellery as auspicious and have emotional and cultural strings attached to it, due to which many are often hesitant to melt their jewellery and ancestral gold.

• Many are discouraged by the tax declaration of the gold as depositors had to declare their gold in order to earn interest. Furthermore, even the interest earned was taxable, making it more unappealing for the consumers.

• The long and tiresome process of getting a purity check done and a limited number of testing centers made the scheme inconvenient. Moreover, not many banks participated in the scheme, so awareness and outreach were limited.

Why did the centre discontinue Sovereign Gold Bonds?

The Sovereign Gold Bond (SGB) scheme, also launched in 2015, was an initiative taken by the central government aimed at offering an alternative to physical gold to Indian consumers. To curb gold imports, the government offered ‘paper gold’ as a part of the Gold Monetisation Scheme. In simple words, SGBs are government securities denominated in grams of gold.

The government discontinued the SGBs in the fiscal 2025 due to rising borrowing costs, gold price volatility and global economic challenges, Finance Minister Nirmala Sitharaman said in a written response to questions from Rajya Sabha MP Narain Dass Gupta on Tuesday.

Since its launch in November 2015, the centre has issued 67 tranches of SGBs, amounting to 146.96 tonnes of gold. The total outstanding value of SGBs, as of March 20, stood at ₹67,322 crore for 130 tonnes of gold. The government last issued a gold bond in February 2024.