Gold prices up: After Sovereign Gold Bonds, govt discontinues Gold Monetisation Scheme; check details

The Centre has decided to discontinue the Gold Monetisation Scheme for medium-term and long-term deposits effective March 26, 2025. The government cited soaring gold prices as a contributing factor to this decision, with the possibility of the Rs 1 lakh/10 gm mark becoming a reality in the near future.

In a statement released by the finance ministry last month, it was mentioned that after evaluating the performance of the Gold Monetisation Scheme (GMS) and considering current market conditions, the Medium Term and Long Term Government Deposit components of the GMS will no longer be available as of March 26, 2025. Short-term bank deposits under the GMS will continue at the discretion of banks.

“…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.

The closure of the Gold Monetisation Scheme marks the second gold scheme shut down by the government in response to the recent significant increase in gold prices. The issuance of Sovereign gold bonds has also been discontinued by the Centre. 

Gold prices on April 2 touched  Rs 90,921 per 10 gm for gold (999 purity), as per the India Bullion and Jewellers Association.

Gold Monetisation Scheme

The Gold Monetisation Scheme, introduced in November 2015, aimed to utilise idle gold effectively. Through this scheme, individuals have the option to either sell their gold or deposit it with banks, enabling it to be integrated into the formal economy. This initiative helps in reducing the country's gold imports and subsequently decreasing the current account deficit. 

Gold deposited by individuals through the Gold Monetization Scheme (GMS) undergoes a purity check and is melted by a Collection and Purity Testing Center (CPTC). The refined gold is then converted into tradable gold bars, with any impurities deducted from the final amount. The total amount is credited to the depositor's gold account, allowing depositors to save on storage charges and earn interest on idle gold.

Various entities such as households, trusts, and institutions in India have taken advantage of this scheme to deposit their idle gold. 

The GMS, which is an enhanced version of a previous Gold Deposit Scheme, comprises three main components: short-term bank deposit (1-3 years), medium-term government deposit (5-7 years), and long-term government deposit (12-15 years). The minimum deposit amount accepted is 10 grams of raw gold (including bars, coins, and jewelry without stones or other metals), with no maximum limit specified for deposits under the scheme.

The GMS portfolio included three components:

Short-term bank deposit (1-3 years)
Medium-term government deposit (5-7 years)
Long-term government deposit (12-15 years)

Gold Monetisation Scheme Interest Rates

The interest rates offered under the Gold Monetisation Scheme are determined by various factors such as prevailing international lease rates, market conditions, and other costs. For short-term deposits, banks decide the interest rate, which is covered by the banks. Meanwhile, the government, in collaboration with the RBI, establishes and covers the interest rates for medium- and long-term deposits. Currently, the interest rate for medium-term bonds stands at 2.25 per cent, and for long-term bonds, it is set at 2.5 per cent.

Closure of Gold Monetisation Scheme

The government and RBI have announced the closure of the Gold Monetisation Scheme. The Ministry of Finance revealed on Tuesday that the Medium Term and Long Term Government Deposit components of the scheme will be discontinued, effective from March 26, 2025. Short-term deposits offered by banks will continue to be available, while the MLTGD components will be phased out due to an evaluation of the scheme's performance and changing market conditions.

“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 statement read.

Gold under Gold Monetisation Scheme

As of November 2024, official data showed that a total of 31,164 kg of gold has been mobilized through the Gold Monetization Scheme (GMS). Within this, 7,509 kg came from short-term gold deposits, 9,728 kg from medium-term gold deposits, and 13,926 kg from long-term gold deposits. A total of 5,693 depositors participated in the GMS initiative.

In previous declarations to Parliament, the Finance Ministry stated that 1,134 kg of gold was collected from individuals/Hindu Undivided Families (HUFs) during the financial years 2016-17 and 2017-18. Additionally, approximately 10,872 kg of gold was collected from temples/trusts, mutual funds/gold ETFs, and other entities such as companies/firms under the scheme. HUF stands for Hindu Undivided Family.