The RBI’s strategic gold buying has bolstered India’s foreign exchange reserves, offsetting the significant outflow of foreign portfolio investments that resulted in a $47 billion reduction in reserves over a five-week period.
Since December 2017, the RBI has been steadily building its gold reserves as a part of its reserves management policy. Following the COVID period, it has intensified its gold acquisition, becoming a significant purchaser amongst central banks worldwide.
The RBI maintains that its gold reserves serve primarily to diversify its foreign currency assets portfolio, providing protection against inflation and currency-related risks.
The latest RBI data indicates that whilst foreign currency assets decreased by $1.1 billion since the start of fiscal 2024-25 until November 15, the value of gold holdings increased by $13 billion during the same timeframe, contributing to an overall $11 billion rise in foreign exchange reserves. The total reserves, comprising gold, foreign currency assets and SDR, currently stand at $658 billion, as per an ET report.
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According to recent RBI figures, the central bank increased its gold holdings by 44.76 tonnes between March 29 and October 25 this year, taking it from 822.09 tonnes to 866.65 tonnes.
The World Gold Council reports a 23 percent increase in gold prices during this period, whilst the RBI’s gold reserves value rose by 31 percent. The World Gold Council notes that central banks’ demand is driving gold prices upward, resulting in valuation gains. Central banks are increasingly prioritising asset security amidst global political uncertainties.
“We are building up gold reserves, the data is released from time-to-time,” RBI governor Shaktikanta Das had said earlier this year. “All aspects while building up the reserves are assessed and then we make a decision.”
Incremental Rise in RBI’s Forex Reserves
Following the start of the Russia-Ukraine conflict in February 2022, central banks worldwide have increased their gold accumulation significantly. The RBI has aligned with this global central banking trend.
Financial experts anticipate continued substantial gold acquisitions by central banks into 2025. “The market is likely to remain supported by official sector purchases continuing at historically elevated levels and resilient physical demand” noted Joni Teves, Precious Metals Strategist, UBS Investment Bank in a research report.
Speaking on Bloomberg TV on November 21, Goldman Sachs co-Head of Global Commodities Research Samantha Dart predicted gold prices would reach $3,000 per ounce by late 2025.
