RBI on a gold hunt: 24 tonne purchase in Jan-April raises value at 8.7% of forex reserves

The search for a hedge against volatility and geopolitical tensions in different parts of the world has prompted India’s central bank to buy as much as 24 tonne of gold between January and April. Incidentally, the Reserve Bank of India is not the only central bank in the world following this strategy.

But RBI has certainly stepped up its efforts in buying gold – the quantity purchased in the four months of this year is about 150% of the quantity it bought during the whole of 2023. RBI added 16 tonnes to its reserves that year.

RBI held 827.69 tonnes worth of gold as a part of the forex as on April 26, 2024. This quantity, as in end-December was 803.6 tonnes.

The quantity of gold in the RBI vaults stood at 676.7 tonne, 754.1 tonne, 867.4 tonne, 803.6 tonne and 827.7 tonne in December 2020, December 2021, December 2022, December 2023 and April 2024 respectively.

Incidentally, the central bank of China is buying gold furiously, which many experts believe is a part of its strategy to reduce dependency on the US dollar which it deems as a tool for foreign policy leverage. The World Gold Council has said that the People’s Bank of China purchased 224.88 tonnes of gold in 2023 – a sharp 362% rise compared to its acquisition of 62.1 tonnes in 2022. Between January and March of 2024, it bought 27.06 tonnes of gold. The total gold reserve of the Chinese central bank is now 2,262 tonnes, which is equal to 4.6% of its total foreign exchange reserves.

China’s gold reserves have risen by 314 tonnes since November 2022, the time at which the PBoC resumed reporting. During the same period, foreign exchange reserves rose by 5% in dollar terms, and official gold tonnage holdings jumped by 14%, with their total value surging by 44%

Indian people have traditionally been one of the largest consumers of gold. But RBI has not been very active stockpiling gold. It began buying from the market from December 2017.

Due to the aggressive recent buying of gold by RBI, the share of gold in the total foreign exchange reserves increased from 7.75% in December 2023 to about 8.7% in April 2024.

“The heightened global uncertainty is sending emerging market central banks on a spree of gold buying, adding 290 tonnes in the first quarter of 2024 and accounting for a quarter of overall global gold de mand,” read an assessment of the state of the economy by the Reserve Bank economists.

“Amid geopolitical developments and a slowing global economy, these central banks are signalling that living in challenging times calls for strategic diversification,” the assessment added. However, RBI carries the disclaimer that it is not necessarily the official stand of the bank.

As an asset, gold has always shined due to its ‘store of value”. “Last year, central banks placed great emphasis on gold’s value in crisis response, diversification attributes and store-of-value credentials. A few months into 2024, the world seems no less uncertain, meaning those reasons for owning gold are as relevant as ever,” wrote a senior World Gold Council analyst in a note.