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Today is Akshaya Tritiya and buying gold is considered auspicious. But did you know that gold is considered a safe haven asset – not just by individuals but also central banks. Which explains why central banks around the world have been increasingly purchasing gold in the last few years amidst ongoing global economic volatility.
From the Covid pandemic shock to the Russia-Ukraine war and now the tariff war triggered by the Donald Trump administration, gold prices have been touching new lifetime highs partly driven by central banks of major economies stocking up on gold to fundamentally secure foreign exchange reserves.
The Reserve Bank of India (RBI) has been aggressively buying gold for the last few years. In FY 2024-2025, it purchased 57.5 tonnes of gold – the second highest yearly buying since December 2017.
India’s growing gold reserves
India, the world’s fifth largest economy, also has the seventh highest gold reserves globally. Back in 2015, India was at the 10th rank in the list of countries with highest gold reserves.
Analysis of World Gold Council data shows that the percentage of gold in India’s total foreign exchange reserves has spiked in the last few years. From 6.86% in 2021 to 11.35% at the end of 2024!
Foreign exchange reserves act as a cushion against economic shocks, help stabilize currency, manage inflation and are a big indicator of overall economic stability and fundamental strength.
RBI’s stock of gold reserves has grown from 653 tonnes in FY20 to 880 tonnes at the end of March 2025, according to the RBI data. That’s a 35% hike in just 5 years!
Why is the RBI buying gold? Blame it on the dollar!
Madan Sabnavis, Chief Economist at Bank of Baroda explains that the main idea for the RBI could be to bring about more diversification in forex holdings through gold holdings. “The dollar has tended to be quite volatile in the last couple of years and this has pushed up the price of gold as a safe haven asset,” he tells TOI.
The US dollar is the main reserve currency of the world, which means that most countries hold their forex reserves in dollars, thereby also facilitating trade. But central banks now seem to be focusing on diversifying to gold amidst dollar volatility.
Experts are of the view that going forward as well, there will be a trend of central banks around the world keeping higher gold reserves as a percentage of their forex reserves. RBI will also therefore likely continue to buy higher quantities of gold to build higher gold reserves.
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DK Srivastava, Chief Policy Advisor at EY India stresses on the need to diversify India’s foreign exchange portfolio in times of heightened global economic uncertainty.
“The Dollar Index has fallen from its peak of nearly 110 in January 2025 to below 100 now. This trend is expected to continue, and the USD may continue to weaken. It is therefore prudent for the RBI to increase the share of gold and decrease the share of USD in its foreign exchange portfolio,” Srivastava tells TOI.
Ranen Banerjee. Partner and Leader, Economic Advisory Services at PwC India also points to increased volatility in the US dollar. “The volatility in USD and the spikes in US treasury yields creates a risk on the reserves held in US dollar by central banks. There will be a general trend of central banks keeping progressively higher holdings of reserves in gold,” he told TOI.
“The outlook of gold prices is also strong and hence the valuation gain possibilities on gold reserves will also be an incentive for RBI to hold higher reserves in gold,” he added.
How do higher gold reserves help India?
RBI has not only been buying more gold, it’s also been shifting a big chunk of these gold reserves back to India. A TOI report last year revealed that since September 2022, RBI has moved 214 tonnes of gold back to India – all this amongst global volatility which makes the government believe that it’s better to hold a higher value of gold reserves domestically.
Sachchidanand Shukla, Group Chief Economist at Larsen & Toubro says that by increasing gold holdings and repatriating significant amounts to India for storage, the RBI has strengthened and diversified India’s foreign exchange reserves amid rising global geopolitical uncertainty & declining confidence in USD denominated assets.
Also Read | Gold prices at record high! Sovereign gold bond investors weigh profit booking with 221% returns
Shukla is of the view that higher gold reserves also stabilize the Indian economy and elevate its global financial standing. “This also aligns with a global trend of central banks prioritizing gold as a secure asset, ensuring long-term stability for India’s economy,” he tells TOI.
EY’s Srivastava believes that with a larger backing of gold, it will be easier for India to induce more countries to use the rupee in bilateral trade as also the UPI platform.
Further, the current trends indicate that there would be an appreciation of the overall value of India’s foreign exchange reserves as gold continues to appreciate, he notes.
“This will benefit the government also through higher dividends from the RBI. Also, as global crude prices fall and India’s dependence on the USD for its imports gets reduced, the overall economy would benefit with an expansion of volume of international trade,” he adds.
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