Reserve Bank of India’s gold purchases has helped the central bank to hold up foreign exchange reserves amidst a huge pullout by foreign portfolio investors that saw reserves contracting by $47 billion in five weeks.
While the value of foreign currency assets dipped $1.1 billion on an incremental basis since the beginning of the fiscal 2024-25 upto November 15, value of gold in reserves rose $13 billion in the same period and help shore up overall foreign exchange reserves by $11 billion, the latest Reserve Bank of India data shows. Reserves including gold, foreign currency assets and SDR are now at $ 658 billion.
The central bank added 44.76 tonnes to its stock of gold between March 29 and October 25 this year, ramping up gold stocks from 822.09 tonnes to 866.65 tonnes during the period according to the latest Reserve Bank of India data.
Gold prices rose 23 percent during the period according to the World Gold Council, while RBI’s value of gold in reserves rose 31 percent. The gold body says the demand from central banks is triggering a price rally in gold, which in turn helps them with valuation gains. Central banks have started looking for safety of their assets amidst an uncertain geopolitical environment.
“We are building up gold reserves, the data is released from time-to-time,” said RBI governor Shaktikanta Das at the post policy media conference on April 5. “All aspects while building up the reserves are assessed and then we make a decision.”
The RBI has been actively accumulating gold as part of its reserves management strategy since December 2017. But it has become more aggressive post COVID and is one of the major buyers of gold among global central banks.
The central bank’s stated objective of holding gold in reserves is mainly to diversify its foreign currency assets base, as a hedge against inflation and foreign currency risks.
Central banks globally have actively started accumulating gold more aggressively after the Russia- Ukraine war started in February of 2022. The RBI too has followed the trend of central banks globally.
Active gold purchases by central banks are expected to continue in 2025 market analysts said. “The market is likely to remain supported by official sector purchases continuing at historically elevated levels and resilient physical demand” said Joni Teves, Precious Metals Strategist, UBS Investment Bank in a research note.
Goldman Sachs co-Head of Global Commodities Research Samantha Dart sees gold prices hitting $3,000 an ounce by the end of 2025. She said on Bloomberg TV on November 21.