RBI has increased its gold hoard in 2024, & may acquire more

RBI has increased its gold hoard in 2024, & may acquire more

The Reserve Bank of India (RBI) has increased its gold reserves, which is part of the total forex reserves, by around 1 percent so far in 2024, according to data.

Experts say this is because the current global geopolitical scenario is fraught with uncertainty, including trade tensions, political instability, and conflicts such as the Russia-Ukraine war, which necessitates that reserves are diversified away from foreign currency assets.

According to RBI data, gold reserves stood at $56.982 billion as of June 7, which is 8.69 percent of the total reserves, whereas it stood at $48.328 billion on December 29, 2023, which was 7.76 percent of the total reserves.

“Gold's historical resilience during geopolitical crises makes it an attractive asset for central banks seeking to shield their reserves from such unpredictable events,” said Amit Pabari, Managing Director, CR Forex.

“We believe this marginal buying of gold is a result of maintaining a certain amount of diversification of its reserves away from foreign currency assets,” said Anindya Banerjee, SVP, Head of Research- Currency, Commodity and Interest Rates, Kotak Securities.

Last month, as per a Times of India report, RBI had brought home a little over 100 tonnes of its gold that was stored in the UK.

Gold at such a scale was added to the central bank treasury last in 1991, the report added. A similar quantity of the metal may be added to the RBI's stock over the next few months for logistical reasons and diversified storage.

At the end of March, the RBI had 822.1 tonnes of gold in reserve, of which 413.8 tonnes was stored overseas. Central banks the world over have bought gold in recent years, with 27.5 tonnes added during FY23.

Why are central banks accumulating gold?

Experts are of the view that most central banks have increased their gold reserves in the last few years post the Russia-Ukraine War and confiscation of the Russian central bank's assets.

“Major central banks may have accumulated gold as a hedge against geopolitical turmoil,” said Banerjee.

Per a World Gold Council report dated June 18, an increasingly complex geopolitical and financial environment is making gold reserves more relevant than ever.

According to the 2024 Central Bank Gold Reserves (CBGR) survey, which was conducted among 70 central banks between 19 February and 30 April 2024, 29 percent of the central banks intend to increase their gold reserves in the next 12 months.

The report added that the planned purchases are chiefly motivated by a desire to rebalance to a preferred level of gold holdings, domestic gold production, and financial market concerns, including higher crisis risks and rising inflation.

Way ahead

Experts said that central banks may continue to accumulate gold to hedge against geopolitical risk.

“We expect central banks, including the RBI, to continue to accumulate gold to maintain diversification and hedge against geo-political risks,” explained Banerjee.