RBI is investing more and more in Gold, Know Why

The Reserve Bank of India (RBI) has been actively increasing its gold reserves as a strategic move to hedge against volatility amidst geopolitical tensions. From January to April 2024, the RBI added 24 tonnes of gold to its reserves, which is significantly higher than the 16 tonnes added throughout 2023.

As of April 26, 2024, the RBI held 827.69 tonnes of gold as part of its foreign exchange reserves, an increase from 803.6 tonnes at the end of December 2023. This increase in gold reserves is almost 1.5 times the volume added in the whole of 2023.

The RBI’s decision to stock up on gold is part of a larger trend among emerging market central banks. These banks are diversifying their reserves to hedge against currency volatility and the uncertainty in the global economy. In the first quarter of 2024, emerging market central banks added 290 tonnes of gold, accounting for a quarter of overall global gold demand.

Reasons for Increasing Gold Reserves

There are several reasons behind the RBI’s decision to increase its gold reserves. One reason is to diversify its foreign exchange reserves and reduce dependence on other currencies. Gold is considered a safe-haven asset that provides a hedge against inflation and currency fluctuations.

Another reason is the decline in confidence in dollar assets among central banks. Non-US central banks’ holdings of US Treasury bonds have dropped, indicating a shift in preference towards gold as a store of value.

Benefits of Increasing Gold Reserves

By increasing its gold reserves, the RBI is not only diversifying its holdings but also benefiting from valuation gains due to the steady rise in gold prices. Gold is known for its store of value and has been performing well in response to global uncertainty.

Conclusion

The RBI’s decision to increase its gold reserves is a strategic move to hedge against volatility amidst geopolitical tensions. This increase is part of a larger trend among emerging market central banks to diversify their reserves and reduce dependence on other currencies. Gold is considered a safe-haven asset and provides a hedge against inflation and currency fluctuations. The RBI’s increase in gold reserves is expected to provide long-term benefits and help protect against market volatility.