RBI’s hoard of gold now almost 800 tonnes: What’s behind the gold rush by central banks?

And how much gold has RBI bought?

The RBI bought 34.22 tonnes of gold in fiscal 2023; in fiscal 2022, it had accumulated 65.11 tonnes of gold. Between the fiscal year ended June 30, 2019 (the RBI used to follow the July-June accounting year then; this was changed to April-March starting 2020-21) and fiscal 2023, the RBI’s gold reserves swelled by 228.41 tonnes.

The 794.64 tonnes of gold reserves in fiscal 2023 also included gold deposits of 56.32 tonnes. In its half-yearly report on Management of Foreign Exchange Reserves: October 2022-March 2023, released on Monday (May 8), the RBI said 437.22 tonnes of gold is held overseas in safe custody with the Bank of England and the Bank of International Settlements (BIS), and 301.10 tonnes of gold is held domestically.

As on March 31, 2023, the country’s total foreign exchange reserves stood at $578.449 billion, and gold reserves were pegged at $45.2 billion. In value terms (USD), the share of gold in the total foreign exchange reserves increased from about 7 per cent at the end of March 2022 to about 7.81 per cent at the end of March 2023. It was 7.06 per cent as of end-September 2022.

But why is the RBI purchasing so much gold?

Experts believe that the RBI has been stepping up its gold purchases over the last few years in order to diversify its overall reserves. This change in strategy, according to experts, has been driven by negative interest rates in the past, the weakening of the dollar and growing geopolitical uncertainty.

“Central banks want security, safety, liquidity and return. Gold is a safe asset to have as it is liquid, has an international price which is transparent, and as it can be traded anytime. So, central banks are buying gold,” World Gold Council’s (WGC’s) Regional CEO (India) Somasundaram PR said last week.

The RBI added 7 tonnes of gold in January-March 2023, a recent WGC report showed. According to Somasundaram, the RBI is among the top five central banks that are buying gold.

So are other central banks too buying gold?

Yes, many other central banks, including the Monetary Authority of Singapore (MAS), the People’s Bank of China (PBoC) and the Central Bank of the Republic of Turkey have been buying gold. In the calendar year 2022, central banks around the world purchased 1,136 tonnes of gold, which was a record high.

“Gold has been ‘en vogue’ with central banks since they became net purchasers on an annual basis in 2010. The two key drivers of central banks’ decisions to hold gold are its performance during times of crisis, and its role as a long-term store of value,” the WGC said in its report on Gold Demand Trends for 2022, released in January 2023.

“It’s hardly surprising then that in a year scarred by geopolitical uncertainty and rampant inflation, central banks opted to continue adding gold to their coffers and at an accelerated pace,” the report said.

And which are the main banks buying gold?

According to the WGC, gold is being bought mainly by central banks of emerging market economies. The WGC report said that in 2022, the PBoC reported the first increase in its gold reserves since September 2019. In November and December 2022, the PBoC announced total gold purchases of 62 tonnes, lifting its total gold reserves to over 2,000 tonnes for the first time.

These announcements were significant given China’s historic position as a large buyer of gold, having accumulated 1,448 tonnes between 2002 and 2019, the WGC report said. However, the Central Bank of Turkey reported the largest buying in 2022. Its official gold reserves swelled by 148 tonnes to 542 tonnes, the highest level on record.

During 2022, the central banks from the Middle East, including Egypt, Qatar, Iraq, the UAE, and Oman significantly boosted their gold reserves. The Central Bank of Uzbekistan ended 2022 as a net purchaser of gold, with its gold reserves rising by 34 tonnes.

In January-March 2023, the Monetary Authority of Singapore was the largest single buyer of gold after it added 69 tonnes to its gold reserves, the WGC said in its Gold Demand Trends Report for Q1 of calendar 2023.

“Central bank buying remains robust, with little to indicate that this will change in the short term,” the WGC report said.