Context:
Central banks around the world, added 53 tonne of gold to their reserves, of which the Reserve Bank of India’s addition was 8 tonne, the World Gold Council (WGC) said.
India’s Gold Reserves
- India’s total gold reserves are 854.73 metric tonnes, with domestic gold at 510.46 metric tonnes in September 2024.
- India’s Rank
- The World Gold Council ranks India 8th in terms of sovereign gold holdings, with the US leading.
- India’s gold reserves comprise of almost 9.57% of its forex reserves.
Reasons for Repatriating Gold
- Reduced geopolitical risks
- Countries like India prefer holding their gold reserves domestically to protect against foreign sanctions or restrictions.
- Increased market confidence
- Gold is seen as a “safe haven” asset, especially in emerging markets.
- Improved economic sovereignty
- India’s gold reserves exceed 101% of its external debt, enhancing India’s debt repaying capacity.
- Support for domestic financial markets
- Since gold is held physically in India, the RBI can more easily support gold-backed financial products in domestic markets.
- Trend of Central Banks Repatriating Gold
- It has reduced the cost of central banks by repatriating gold back to their home countries.
- Increasing import cover
- Current foreign reserves are adequate to meet 11.8 months of import.
Why RBI Keeps Gold Reserves Overseas
- Reducing geopolitical risks
- Gold is kept in various overseas locations to avoid the risk of having its reserves concentrated within India.
- International Liquidity
- Gold kept in financial centers like London, New York, and Zurich provides instant access to international markets.
- Economic Resilience
- Gold reserves in international markets provide India with an opportunity to leverage them as collateral for loans or other financial instruments.
- Safe Custodians
- Bank of England and Bank for International Settlements offer a well-established international framework through which central banks can manage and store their gold reserves.
