Gold prices have surged by more than 10% in 2025, with a sharp increase of over 1.5% on Monday, setting a new record high. The rise in gold prices is being driven by strong demand for safe-haven assets, as fears of a global trade war grow following U.S. President Donald Trump’s announcement of new tariffs.
Trump’s Tariff Announcement Sparks Market Concerns
On Sunday, President Trump declared plans to impose an additional 25% tariff on all steel and aluminum imports. He also stated that reciprocal tariffs would be introduced this week, matching the rates set by other countries. These announcements have heightened economic uncertainty, pushing investors toward gold, which is considered a stable asset during times of financial and geopolitical turmoil.
RBI’s Gold Buying Strategy and Government’s Clarification
India’s Reserve Bank of India (RBI) has also been purchasing gold in large quantities. In the Lok Sabha, Congress MP Manish Tiwari questioned whether the increase in gold reserves indicated a shift away from the U.S. dollar as the primary global currency. However, Finance Minister Nirmala Sitharaman clarified that the RBI’s gold accumulation is part of a broader reserve diversification strategy and does not signal any move to replace the dollar as a dominant settlement mechanism.
Sitharaman emphasized that the RBI holds a mix of foreign exchange reserves, including multiple currencies and gold, to maintain financial stability. Her statement comes at a time when global discussions on reducing dependence on the U.S. dollar, known as “de-dollarization,” have gained traction. However, she reassured that India’s increased gold purchases do not indicate a strategic shift away from the dollar.
India’s Forex Reserves and Gold Holdings on the Rise
As of January 31, India’s foreign exchange reserves stood at $630.6 billion, reflecting a $1.05 billion increase from the previous week. This marks the second consecutive weekly rise in forex reserves, following a $5.5 billion increase the prior week. The main driver of this growth has been gold reserves, which rose by $1.2 billion, reaching $70.89 billion.
In 2024, the RBI added 72.6 tonnes of gold to its reserves—four times the amount purchased in the previous year—making it one of the largest gold buyers globally. India ranked just behind Poland and Turkey in central bank gold purchases amid global currency volatility following Trump’s re-election in November.
By the end of December 2024, the RBI’s total gold stock stood at 876.18 tonnes, valued at $66.2 billion, up from 803.58 tonnes valued at $48.3 billion a year earlier. The 72.6-tonne increase in 2024 marked the highest annual gold purchase by the RBI since 2021 and the second-highest since it resumed buying gold in 2017.
RBI’s Gold Buying Strategy and Global Trends
Unlike some global central banks, such as those in Turkey, Switzerland, and China, the RBI rarely sells gold due to the political and economic sensitivity of such a decision. It remains one of the top ten holders of gold among global central banks.
The trend of central banks buying gold continued in 2024, with global purchases exceeding 1,000 tonnes for the third consecutive year. In the fourth quarter alone, central banks bought 333 tonnes, pushing the total purchases for the year to 1,045 tonnes.
The RBI’s aggressive gold accumulation is aimed at reducing risks associated with currency volatility. In April-September 2024, valuation gains added $56 billion to India’s forex reserves, whereas a loss of $17.7 billion was recorded during the same period in 2023. Meanwhile, gold prices surged by over 25% in 2024, helping offset potential losses in forex valuation.
Why Is the RBI Buying More Gold?
Since October, the RBI has accelerated its gold purchases to protect against forex revaluation risks and to stabilize the Indian rupee. A portion of the reserves is also being used to counter fluctuations in the currency market.
According to Gaura Sengupta, Chief Economist at IDFC Bank, central banks diversify their reserves into gold to mitigate revaluation losses. “Holding a high percentage of forex reserves in U.S. Treasury securities exposes central banks to losses when yields rise. Additionally, when the dollar strengthens, it increases the risk of forex revaluation losses,” she explained.
Gold purchases by global central banks have intensified, particularly after the Russia-Ukraine conflict began in 2022. The RBI has followed this global trend, making it one of the world’s most active gold buyers. Analysts predict this trend will continue into 2025.
Louise Street, Senior Markets Analyst at the World Gold Council, stated, “In 2025, we expect central banks to remain strong buyers of gold as they continue their diversification strategies.”
With ongoing economic uncertainty, geopolitical tensions, and rising concerns over currency fluctuations, gold remains a preferred asset for central banks, including the RBI, as they seek stability and long-term security in their reserves.