Why is RBI's gold reserves at all time high amid soaring prices?

RBI's foreign exchange reserves have also hit an all-time high, soaring to $645.6 billion by the end of March 2024.

Mayank Kasyap Last Updated : 06 April 2024, 05:32 PM IST

Courtesy: ANI (File)

New Delhi: The Reserve Bank of India (RBI) has seen a significant surge in its gold reserves, reaching 817 tonnes by the end of February, as reported by the World Gold Council. The value of these reserves stood at $51.487 billion by the end of March 2023, witnessing a substantial increase from $6.287 billion in the preceding year. Furthermore, RBI's foreign exchange reserves have hit an all-time high, soaring to $645.6 billion by the end of March 2024.

RBI's gold purchase

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During his recent monetary policy announcement, RBI Governor Shaktikanta Das disclosed that the central bank had acquired 8.7 tonnes of gold in January, marking a two-year high. This move propelled RBI's gold reserves to $51.487 billion by March 2023, a significant rise from the previous year's figure.

Reasons behind RBI's gold acquisition

Governor Das emphasized that RBI's gold procurement aligns with its reserve deployment strategy. This strategy mirrors a global trend, as central banks worldwide are increasing their gold purchases. The surge in gold acquisitions by central banks globally aims to mitigate the impact of geopolitical tensions, particularly in the Middle East. As per the World Gold Council's report, RBI's total gold holdings reached 817 tonnes by February-end, reflecting a monthly increase of 6 tonnes.

Factors influencing Central Banks' gold buying decision

Central banks' decision to bolster their gold reserves is influenced by various factors outlined in the World Gold Council's January report, including:

Performance during crisis
Inflation hedge
Absence of default risk
Geopolitical diversification
High liquidity

Understanding role of Gold amid global uncertainties

Gold continues to serve as a hedge against uncertainty, especially amidst the backdrop of over 60 elections slated for 2024 worldwide. The surge in gold acquisitions by central banks globally peaked in 2022 at 1,082 tonnes, followed by 1,037 tonnes in 2023.

Factors driving of rise in gold prices

Gold prices breached the Rs 70,000 per 10-ounce mark due to three primary reasons:

Geopolitical tensions in the Middle East
Increased central bank buying
Devaluation of the US dollar, given gold's inverse relationship with the currency.

While prices experienced a slight moderation, dipping to Rs 69,900 per 10 grams on Friday from Rs 70,050 per 10 grams on Thursday, the upward trend underscores the precious metal's enduring appeal amidst global uncertainties.

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Why is RBI's gold reserves at all time high amid soaring prices?