RBI's Gold Acquisition Hits Nearly Two-Year High

In January, the Reserve Bank of India (RBI) made its most significant gold purchase since July 2022, acquiring 8.7 tonnes of the precious metal. According to data from the World Gold Council, the RBI's gold reserves rose to 812.3 tonnes in January from 803.58 tonnes in December 2023. Experts suggest that the central bank's move to increase its gold holdings is part of its strategy to diversify forex reserves and mitigate risks associated with foreign currencies.

Madan Sabnavis, Chief Economist at Bank of Baroda, highlighted the significance of RBI's decision, stating, "The RBI is strategically increasing gold reserves as part of its forex diversification efforts." He emphasised that amid recent dollar volatility and rising gold prices, this move not only enhances the stability of India's forex reserves but also demonstrates prudent financial management.

Notably, other countries like Turkey, China and Kazakhstan also made substantial gold purchases in January. Turkey acquired 11.8 tonnes, China bought 10 tonnes and Kazakhstan purchased 6.2 tonnes of gold.

Central banks worldwide have been actively bolstering their gold reserves over the past five years to hedge against foreign currency risks.

The surge in gold prices over the past year, reaching a fresh high of Rs 65,000 per 10 grams last week, is attributed to increasing bets of a US Federal Reserve interest-rate cut in June. Additionally, ongoing geopolitical tensions, such as the conflict in the Middle East, have driven investors to seek refuge in gold, considered a safe-haven asset.

Vivek Iyer, Partner at Grant Thornton Bharat, underscored the rationale behind RBI's gold acquisitions, stating, "In a volatile and uncertain market, diversification through gold holdings is an appropriate strategy." He also noted the uncertainties surrounding the status of the US dollar as a global reserve currency, further justifying the importance of gold holdings during such times.

In a move to facilitate gold imports, the government issued a notification allowing the RBI to import gold without paying levies. Typically, gold imports attract a 15 per cent duty, including a 5 per cent agriculture infrastructure development cess.