RBI In Gold Buying Spree Amidst US Dollar Volatility
The Reserve Bank of India (RBI) has increased its purchases of gold as a way to diversify its foreign exchange reserves base and minimize the impact of US dollar volatility. The value of the outstanding gold reserves represents more than four-fifths of the near USD 3 billion increase in forex reserves, which reached a record USD 648.5 billion as of April 5. During the months of January and February of this year, the RBI bought 0.43 million troy ounces, or close to 13.3 tons of gold, from the market, which represents over 80 USD of the total gold purchased by the central bank in 2023.
RBI Governor Shaktikanta Das confirmed that gold reserves are being built up, stating at a post-policy media conference on April 5: "We are building up gold reserves, the data is released from time to time. All aspects while building up the reserves are assessed and then we make a decision.”
Holding gold in reserves is part of the central bank's strategy to diversify its foreign currency assets base and hedge against inflation and foreign currency risks. The Reserve Bank of India has been accumulating gold regularly from the market since December 2017. Its stock of gold as of the end of February 2024 is 26.26 million troy ounces, up from USD 17.94 million troy ounces in December 2017.
In recent times, the value of gold in reserves has been boosted by the over 7 per cent appreciation in international gold prices since February. The gold's value in reserves, which is linked to the prices at the London Bullion exchange, is revalued every week. Currently, the yellow metal prices are at an all-time high and are trading at over USD 2300 per troy ounce (one troy ounce is about 31 grams).
The share of gold in the total foreign exchange reserves has increased in value terms (USD) from about 7.9 per cent as of early April 2023 to about 8.41 per cent as of early April 2024.
However, it's important to note that the central bank holds only a portion of the reserves locally. According to the latest Report on Foreign Exchange reserves, the Reserve Bank held 388.06 metric tonnes of gold overseas in custody with the Bank of England and Bank of International Settlements (BIS), and 372.84 metric tonnes of gold are being held domestically, out of the total 800.79 metric tonnes of gold (including gold deposits of 39.89 metric tonnes) as of September 2023.
Source: https://www.businessworld.in/