MUMBAI : The Reserve Bank of India (RBI) bought nine tonnes of gold in the September quarter, adding to the 337 tonnes bought by global central banks, and underscoring the importance of gold as a diversifier of its total reserves.
With the latest quarterly purchase, India’s official gold reserves stood at 806.7 tonnes as of the end of September, placing it at No. 10 in the pecking order, according to miners’ lobby the World Gold Council (WGC).
Purchases so far this year amounted to 19.3 tonnes. RBI has been adding gold to its total reserves since 2017. From then to the current year it has bought 248.9 tonnes, WGC data shows.
India’s total forex reserves stood at $586.9 billion as of September 29, of which the value of gold holdings was $43.7 billion or 7.44% of the total reserves, according to RBI’s Weekly Statistical Supplement on October 6.
RBI data as of November 10 shows total reserves at $590 billion with the value of gold held at $45.5 billion or 7.7% of the total. 88 percent of the reserves were held in the form of foreign currency.
“While RBI does not explicitly disclose how much gold it buys, the latest purchases reflect more of a balancing act amid volatility in US treasuries and the foreign exchange market,” said Sujan Hajra, group chief economist at AnandRathi .
Madan Sabnavis, chief economist at Bank of Baroda, said gold acts as a diversifier when US T-bill yields rise or the dollar starts to fall because the Reserve Bank of India has an internal policy on how many currencies to hold. retention and how much of it. gold as a percentage of overall reserves.
“Fed chairman Jerome Powell indicated that the bank may keep the Fed Funds Rate (FFR) at 5.25-5.50% as inflation begins to moderate, after which the dollar index began to correct against a basket of currencies . This would have an impact on the FCA (foreign currency assets) held by RBI and therefore usually if gold is bought, as has happened in recent years, to diversify India’s reserves amid increasing volatility in the forex markets and debt,” said Sabnavis.
In fact, the dollar index, which measures the dollar against a basket of six currencies, has fallen 3% in the month to date to 103.82 after the Fed held the FFR for the second straight meeting ending November 1.
From March of last year to July 2023 FED raised rates 11 times from 0-0.25% to 5.25-5.50%, the highest rate in 22 years.
The People’s Bank of China increased its gold reserves by 78 tonnes during Q3 taking its gold holdings to 2192 tonnes or 4% of total reserves, WGC data shows. The other notable central banks were the National Bank of Poland (57 tonnes) and Turkey’s purchase of 39 tonnes.
Interestingly, provisional WGC data suggests that miners’ net hedges increased by 7.2 tonnes in Q3, amid rising gold prices. This means that some miners believe that prices are attractive enough to lock in profits. Producers were closing fences in Q3 and Q4 last year and in Q2 this year when they de-fenced 19.5 tonnes, WGC data shows.
LBMA gold price rose 12% to $1928.5 per ounce (31.10 gms) in Q3 2023 year ago
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Updated: 19 November 2023, 09:19 PM IST
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