Amidst falling rupee, RBI adds another 6.8 tonnes of gold to forex reserves

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Amidst falling rupee, RBI adds another 6.8 tonnes of gold to forex reserves
Centre may be gradually adding gold equivalent to the sale of sovereign gold bonds, says an analyst

Rajesh Bhayani
Mumbai, 12 September

The Reserve Bank of India (RBI) is becoming consistent in adding gold to its foreign currency reserves.

In July the central bank added 6.8 tonnes, the highest monthly accretion after 2009. This came at a time when the central bank spent more than $25 billion defending the falling rupee.

After buying 200 tonnes from the International Monetary Fund in 2009, the RBI made its first token purchase in December last year with 300 kg and then added more than 2.2 tonnes in March this year. 

In 2018-19, in four months, it added 12.7 tonnes, of which 11.2 tonnes was purchased in June and July, according to the data released by the World Gold Council.

Analysts tracking the international gold reserves say the RBI’s action shows it is buying gold and adding it to its reserves without disturbing markets. The need was felt because Russia, Turkey and even China, along with some other nations, have been adding gold to their reserves as part of diversifying their forex reserves.

The Indian central bank is also seen to be reflecting the government’s risk on gold prices, which it is taking by raising money through sovereign gold bonds (SGBs), which collect money based on gold prices and redeems it after eight years also on prevailing gold prices.

In another data set, the central bank has said it has sold SGBs equivalent to 23.5 tonnes of gold. However, this risk is unhedged because SGBs are considered part of the government’s market-borrowing programme.

Another analyst tracking the government’s gold policies said it might be adding gold equivalent to the sale of SGBs. According to the data provided by the RBI, till 30 June, from 14 tranches of SGBs, ~68.96 billion (in terms of gold value, it amounts to 23.53 tonnes) has been raised through the scheme since its inception in November 2015. However, in its Annual Report, released recently, the RBI stated amounts raised through SGBs were lower than expected, “reflecting low investor appetite”.

The RBI had indicated in its Annual Report more aggressive SGB issues would be floated.

Now the reserves have gone up to 573.1 tonnes, which is 5.5 per cent of the forex reserves, according to the updated data of the WGC. 

Global scene 

Russia, Kazakhstan and Turkey are among aggressive buyers of gold. In the quarter ended June, globally central banks had added 89 tonnes to their reserves and sources say the space has increased in months after that. 

Kazakhstan’s gold reserves have grown for 68 consecutive months. At the end of the June quarter, there were calls in the country’s lower house of Parliament for the central bank to increase the gold reserves in the face of geopolitical and economic risks, and uncertainties arising from the global shift towards a multicurrency system. In July the central bank added 5 tonnes, taking the reserves to 326 tonnes. According to the WGC, “Turkey retains its strategic commitment to gold. Gold reserves totalled 240.2 tonnes at the end of June, 107 per cent higher than when net purchases began in May 2017.”

In the June quarter, the Russian central bank purchased 53 tonnes. The WGC data shows it added 26 tonnes in July. 

China is also a big buyer of gold but it doesn’t disclose the figures regularly.

Shining side up
  • RBI added 6.8% gold to reserves in July, highest quantity after 2009
  • In last 4 months totally 12.7 tonnes added every month
  • Analysts see possibility of RBI gradually adding gold equivalent to SGB raised
  • 23.5 tonnes worth of gold equivalent money raised by SGB where price risk is on government which is unhedged
  • Globally Russia, Turkey and Kazakhstan emerged big purchasers of gold for currency reserves
  • Central banks add gold to forex reserves to diversify source of reserves