“We are building gold reserves, the data is released from time to time,” RBI Governor Shaktikanta Das said at the post-policy press conference on April 5. “All aspects of stockpiling are evaluated and we then make a decision.”
The central bank’s stated objective of holding gold in its reserves is primarily to diversify its foreign currency asset base, in order to protect against inflation and foreign exchange risks. The Reserve Bank of India started steadily accumulating gold in the market since December 2017. Its gold stock at the end of February 2024 was 26.26 million troy ounces, compared to $17.94 million of troy ounce in December 2017.
Gold is considered a stable asset during times of uncertainty and political unrest. “In my opinion, the reason to buy gold is both political and economic,” said Madan Sabnavis, chief economist at Bank of Baroda. “The dollar in general has been a very stable currency, but it ceased to be reliable after the war in Ukraine. Today, US bonds have reached their highest yields. The dollar is no longer such a currency stronger than before, even if all trade takes place in dollars.
Additionally, the more than 7% appreciation in international gold prices since February has also helped increase the value of gold in reserves. The value of gold in reserves, linked to prices on the London Bullion stock exchange, is reassessed every week. Prices of the yellow metal are reaching new highs and trading at over $2,300 per troy ounce (one troy ounce is approximately 31 g).
Additionally, central bank confidence in dollar assets appears to be declining. Holdings of U.S. Treasuries by non-U.S. central banks fell from 50.1% in January 2023 to 47.2% in January 2024, according to U.S. Treasury Department data. “It makes perfect sense (to invest in gold), given the increased volatility in the foreign exchange market, high interest rates in the United States and, of course, the fact that central banks in “Every economy wants to diversify the asset classes in which they park their reserves,” said Anubhuti Sahay, head of economic research, South Asia, at Standard Chartered Bank. “For India, the total amount of reserves. of gold is set to increase because the corpus of reserves has increased with gold appreciating, this also provides a boost Central banks do not generally just valuation, but there will be in our view. more important factors, which would be the diversification of reserves.
In value terms (USD), the share of gold in total foreign exchange reserves increased from around 7.9% at the start of April 2023 to around 8.41% at the start of April 2024.
But the central bank only holds part of the reserves locally. According to the latest foreign exchange reserves report, out of a total of 800.79 tonnes of gold (including gold deposits of 39.89 tonnes), the Reserve Bank held 388.06 tonnes of gold at l foreign deposit with the Bank of England and the Bank for International Settlements (BIS). ), and 372.84 metric tons of gold were held in the country as of September 2023.
