The Reserve Bank of India (RBI) has become one of the top five gold buyers in the March quarter, according to bullion market experts. As central banks look to diversify their reserves amid economic uncertainties, the RBI has increased its gold reserves to just under 800 tonnes.
The bank acquired about 10 tonnes of gold in the March quarter, after procuring 27 tonnes between April and December 2022, placing it among the top five gold buyers in the world, alongside Russia, Singapore, China and Turkey.
The purchases come as gold prices rose 9% in the January-March 2023 period. RBI has been steadily increasing its gold reserves for the past five fiscal years, procuring about 230 tonnes of gold to bolster its reserves amid rising global economic uncertainty and geopolitical tensions.
The bank has consistently purchased gold as it seeks to reduce its dependency on political goodwill from the US, and experts expect the trend to continue.
“Purchases from emerging markets central banks remain high, which should act as a floor for the gold price,” said a 24 April report by Swiss private lender Bank J. Safra Sarasin Ltd.
Gold price gained 9% in the January-March 2023 period. “A surge in March to record the highest monthly inflows since 2019 reversed two weak months for global gold ETFs and futures investment,” according to a WGC April report.
After buying 200 tonnes from the International Monetary Fund (IMF) in 2009, RBI didn’t add much yellow metal to its reserves.
However, from FY18, RBI has steadily increased its gold reserve from 560.3 tonnes to 790.2 tonnes as of February 2023 end, according to WGC, which collates data from IMF.
The latest WGC data on global exchange-traded funds (ETF) flows also reveal that the tide has finally turned for gold.
“For the first time in 12 months, gold ETFs have seen net inflows across all continents in March,” said the report by J. Safra Sarasin.
“They (RBI) have been purchasing gold for five years on the trot as data through February shows,” said Somasundaram P.R., managing director, India, WGC, adding that he expects RBI to remain buyers in March and the trend could continue, given the safe haven status of the metal.
Overall, RBI holds the 10th largest gold reserves in the world after the likes of the US (8,134 tonnes), Germany (3,355 tonnes), IMF (2,814 tonnes), Italy (2,452 tonnes) and France (2,437 tonnes).
RBI’s buying coincides with other central banks also diversifying their reserves amid economic uncertainty induced by the outbreak of covid-19 pandemic and the Russia-Ukraine conflict.
“Central banks across the world picked up 2.5 times gold in 2022 vis-a-vis 2021 and the highest in 55 years,” said Shekhar Bhandari, president of global transaction banking at Kotak Mahindra Bank.
“Gold reserves coupled with a strong economy, balanced CAD, and good BoP lay the foundation for the rupee as the world reserve currency over the next 10 years,” Bhandari said.
Madan Sabnavis, chief economist of Bank of Baroda, said the buying reflected the central bank’s intent to diversify its reserves. It was more of a safe bet, he added.
Following the precious metal’s retracement in February, the collapse of US-based Silicon Valley Bank (SVB) in early March led to a resurgence of market volatility, initiating a strong gold rebound, as per bullion experts.
“We expect more cracks in the financial system to emerge in the months to come, given the current degree of financial tightening. In our view, this points to continued support for gold, which has usually risen strongly at the onset of episodes of financial distress or elevated geopolitical uncertainty,” the J. Safra Sarasin report said.
JP Morgan, in a 25 April report, said, “Given the potential crosscurrents, we think gold is likely to be more range-bound, whereas industrial metals can come under more significant pressure.”
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