Reserve Bank of India adds another 3.1 tons of gold to forex reserves

The Reserve Bank of India has added 3.1 tons of gold to the reserves in the quarter ending in March in two tranches. This is the first addition since 2009 when RBI bought 200 tons from IMF at $1032 per ton.. According to IMF data (updated till March 2018), on gold as part of forex reserves, India’s forex reserves in gold stand at 560.3 tonnes. While RBI did not respond to queries about addition of gold to reserves on email, sources said that, “the addition looks like a pilot purchase. Net impact is that reserves are up marginally. This is not significant and does not imply strategic addition, unless we see a creeping acquisition trend.

According to the IMF data (updated till March 2018), on gold as part of forex reserves, India’s addition of gold to reserves, including two instances of a few kg gold in previous two quarters, comes to 3.1 tons taking total gold in forex reserves to 560.3 tonnes. While RBI did not respond to queries about addition of gold to reserves on email, sources said that, “the addition looks like a pilot purchase. Net impact is that reserves are up marginally. This is not significant and does not imply strategic addition, unless we see a creeping acquisition trend.”

However, another source said that, “there was a decision by the government prior to presentation of Union Budget to add gold to the foreign exchange reserves. But with the subject being sensitive, it was not announced.” He was not sure whether the decision was taken with the RBI on-board or not.

Globally central banks are adding gold to reserves to hedge against US Dollar which is the largest reserve currency so far. Prominent countries adding gold to reserves are Russia and Turkey. Turkish Central bank had announced a policy in May 2017 to indicate a shift in forex reserve policy where gold will be a prominent assets replacing US dollar.

Turkey’s commercial banks also hold huge gold deposits which are placed with central bank under the Reserve Option Mechanism (ROM). It may be remembered that Turkey has provided successful example of gold monetisation scheme and gold with commercial banks includes that. Including gold under ROM, Turkey is 11th largest gold holding country in forex reserves (595.5 tons).

Russia has been buying over 200 tons gold per year since last three years to add to its forex reserves in order to reduce dollar dependence and now its reserves are bigger than China's, making them the sixth largest in the world. Russia and China buy most of their gold locally as they are prominent gold miners.

Sources don’t rule out the possibility of India adding gold mobilised under Gold Monetising Scheme (GMS) to reserves. A source said that India’s central bank is understood to have purchased gold in March from two London based banks.

Central banks buying gold has been a big phenomenon for gold market in last few years with average 350 to 400 tons gold being bought by central banks annually. China buys gold locally but announces with a lag.

However, according to GFMS Thomson Reuters, China will start buying gold to add to its reserves this year after a gap of two years.