RBI joins central bank gold rush, buys 9 tonnes in Jul-Sep

With the latest quarterly buying, India’s official gold reserves stood at 806.7 tonnes as of September end, placing it at No. 10 in the pecking order, according to miner’s lobby World Gold Council (WGC).

Purchases so far this year have totalled 19.3 tonnes. RBI has been adding gold to its total reserves since 2017. From then until the current year it has purchased 248.9 tonnes, WGC data shows.

India’s total forex reserves stood at $586.9 billion as of 29 September, out of which the value of gold held was $43.7 billion or 7.44% of the total reserves, according to RBI’s Weekly Statistical Supplement on 6 October.

RBI data as of 10 November shows the total reserves at $590 billion and value of gold held at $45.5 billion or 7.7% of the total. Eighty eight per cent of the reserves were held in the form of foreign currency.

“Though RBI doesn’t explicitly reveal how much gold it buys, the latest purchases reflect more of a balancing act amid volatility in US treasuries and in the foreign exchange market,” said Sujan Hajra, group chief economist at AnandRathi.

Madan Sabnavis, chief economist at Bank of Baroda, said gold acts as a diversifier when US T-bill yields or the dollar begin to fall as the Reserve Bank of India has an internal policy as to how much of currencies to hold and how much of gold as a percentage of overall reserves.

“Fed chair Jerome Powell indicated that the bank could hold the Fed Funds Rate (FFR) at 5.25-5.50% with inflation beginning to soften, after which the dollar index began to correct against a basket of currencies. This would impact the FCA (foreign currency assets) held by RBI and so buying gold, as has been the case over the past few years, tends to diversify India’s reserves amid rising volatility in the forex and debt markets,” Sabnavis said.

Indeed, the dollar index, which measures the dollar against a basket of six currencies, has fallen 3% in the month to date to 103.82 after the Fed held the FFR for a second straight meeting ended 1 November.

Since March last year till July 2023 Fed raised rates 11 times from 0-0.25% to 5.25-5.50%, the highest in 22 years.

The People’s Bank of China increased its gold reserves by 78 tonnes during Q3 taking its gold holdings to 2192 tonnes or 4% of total reserves, WGC data shows. The other notable central bank purchases were by National Bank of Poland (57 tonnes) and that of Turkey by 39 tonnes.

Interestingly , provisional WGC data suggests that net hedging by miners increased by 7.2 tonnes in Q3 , amid rising gold prices. This means some miners believe that prices are attractive enough to lock in profits. Producers were closing out hedges in Q3 and Q4 last year and in Q2 this year when they de-hedged by 19.5 tonnes, WGC data shows.

The LBMA gold price rose 12% to $1928.5 an ounce (31.10 gms) in the Q3 2023 from a year ago

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Updated: 19 Nov 2023, 09:19 PM IST