RBI goes for gold: Domestic holdings shine at 60% of total reserves

The Reserve Bank of India (RBI) has repatriated 102 tonnes of gold from the Bank of England (BoE) and the Bank for International Settlements (BIS) from March to September 2024, increasing its total gold reserves to 854.73 tonnes, the central bank revealed in its half-yearly report on forex reserves.

Of this, 510.46 tonnes, about 60%, are now stored in India, up from 50% in March. This strategic shift reflects the country’s aim to strengthen domestic reserves amid rising geopolitical risks by gradually relocating gold from foreign custodians to Indian vaults in Mumbai and Nagpur.

Since September 2022, a total of 214 tonnes have been repatriated, with recent gold shipments from the UK unlikely to continue this year.

India’s shift marks its most significant gold repatriation since the 1990s, a time when the nation had to pledge a substantial portion of its gold to foreign banks to weather a balance of payments crisis. In contrast, today's actions are proactive, with India's domestic storage capacity now capable of supporting holding more gold locally, hence underscoring a strategic emphasis on asset security.

India's gold share in total foreign exchange (FX) reserves climbed from 8.15% in March 2024 to 9.32% by the end of September, driven by the addition of 32.63 metric tonnes by the Reserve Bank of India (RBI). This steady increase is part of a broader trend, with gold's share rising from 5.88% in September 2021 to 7.37% in 2023 and now surpassing 9% in 2024. Amid economic uncertainties, gold prices have surged, reaching $2,630 per ounce in September-end.

The report on the other hand revealed that during the first half of FY25, India’s foreign exchange reserves rose from $646.42 billion in March 2024 to a record high of $705.78 billion by the end of September. This level positions India as the world’s second-largest reserve accumulator, after China, among major reserve-holding nations. These reserves now cover 11.8 months of imports, with adequacy exceeding 101% of the nation’s external debt as of June-end.

Of India’s total forex reserves as of September-end, 87% is held in foreign currency assets (FCA), diversified across securities, deposits with other central banks, the BIS, and commercial banks overseas. Specifically, $617.07 billion was held in FCA, with $515.3 billion (83.5%) invested in securities, $60.11 billion in deposits with central banks and the BIS, and $41.66 billion with commercial banks overseas. Comparatively, in March 2024, FCA stood at $570.95 billion, with 82.1% invested in securities, underscoring increased foreign investment.

The RBI noted that FCA movements are primarily driven by currency purchases and sales, income from reserve deployment, external aid receipts, and asset revaluations. Expressed in US dollars, these assets are maintained in multiple global currencies, aligned with international reserve management practices. Net forward assets payable by the RBI were recorded at $14.58 billion as of the end of September. Import cover, a critical indicator of reserve adequacy, strengthened alongside rising reserves, reaching 11.8 months by September.