The Reserve Bank of India’s gold holdings have increased at double the pace of its investments in US treasuries this year reflecting the central bank’s preference for safe haven assets at times of volatile global economic environment.
While the value of gold has risen by close to $20 billion in 2024 to $62 billion at the end of August, India’s – predominantly RBI’s investment in US treasury securities is up $11 billion to $245 billion in the same period. In addition to global economic uncertainties, US treasury prices have fallen in 2024 due to the Fed tightening policy rates making investments in these bonds unattractive if the intention is to trade in the portfolio. The value of gold had further jumped to $67 billion by mid October, the Reserve Bank of India data shows.
“RBI’s forex reserves have grown by $43bn in FY’25 till Oct 18t. Most of the increase took place in Q2FY25 due to revaluation gains. During this period, UST yields were lower, there was dollar weakness and gold prices continued to climb” said Gaura Sengupta, chief economist at IDFC Bank.
Central banks across the world including India’s and China’s a aggressively buying gold as a safe have asset though profit is not a motive.” While safety and liquidity constitute the twin objectives of reserve management in India, return optimization is kept in view within this framework” said the central bank’s latest ” Half Yearly Report on Management of Foreign Exchange Reserves”.
In value terms (USD), the share of gold in the total foreign exchange reserves increased from 8.15 per cent as at end-March 2024 to about 9.32 per cent as at end-September 2024.
As at end-September 2024, the Reserve Bank held 854.73 metric tonnes of gold, of which 510.46 metric tonnes were held domestically. While 324.01 metric tonnes of gold were kept in safe custody with the Bank of England and the Bank for International Settlements (BIS), 20.26 metric tonnes were held in the form of gold deposits, according to the RBI report.
As far as the foreign currency assets are, more than 3/4th of the assets are parked in securities of top rated sovereigns. Of the $597 billion in foreign currency assets as of August 2024, the central bank’s exposure to securities of all sovereigns amounted to $507 billion and US treasury bonds and securities is reckoned to comprise a bulk of such investments.
