MUMBAI : The Reserve Bank of India (RBI) bought nine tonnes of gold in the September quarter, contributing to the 337 tonnes bought by global central banks, and underlining the importance of gold as a diversifier of its total reserves.
With the latest quarterly purchase, India’s official gold reserves stood at 806.7 tonnes as of the end of September, placing it at number 10 in the pecking order, according to miner lobby World Gold Council (WGC).
Purchases so far this year totaled 19.3 tons. RBI has added gold to its total reserves since 2017. From then to the current year it has bought 248.9 tonnes, WGC data shows.
India’s total foreign exchange reserves stood at $586.9 billion as of 29 September, 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 total reserves at $590 billion and value of gold held at $45.5 billion or 7.7% of the total. Eighty-eight percent of the reserves were held in the form of foreign currency.
“While RBI does not explicitly disclose how much gold it is buying, the latest purchases reflect more of a balancing act amid volatility in US treasuries and the currency 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 start falling because the Reserve Bank of India has an internal policy on how many currencies to hold and how many currencies. gold as a percentage of total reserves.
“Fed chair Jerome Powell indicated that the bank could keep 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 will impact the FCA (foreign assets) held by RBI and therefore buying gold, as has happened over the past few years, tends to diversify India’s reserves amid increasing 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 on November 1.
From March of last year to July 2023, the 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 show. The other notable central bank purchases were from the National Bank of Poland (57 tons) and that of Turkey at 39 tons.
Interestingly, interim WGC data suggests that miners’ net output increased by 7.2 tonnes in Q3, amid rising gold prices. This means that some miners believe that prices are attractive enough to lock in profits. Producers closed hedges in Q3 and Q4 last year and in Q2 this year when they de-hedged 19.5 tonnes, WGC data show.
The LBMA gold price rose 12% to $1928.5 an ounce (31.10 gms) in Q3 2023 from a year ago
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Updated: 19 Nov 2023, 21:19 IST
(tagsTo Translate)Reserve Bank of India