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Currency hedge: RBI buys 15 tonnes of gold in Oct-Nov

Safety of its forex asset is the prime reason that central banks park foreign exchange assets in the form of gold.

, ET Bureau|
Last Updated: Jan 09, 2020, 08.56 AM IST
Mumbai: The Reserve Bank of India stepped up hedging against currency volatility by purchasing 0.48 million troy ounce, close to 15 tonnes, of gold in October-November, central bank data showed. This is the highest bi-monthly gold purchase by the central bank since it started buying gold from the open market in December 2017.

India’s central bank bought 2.45 million troy ounces worth gold between November 2017 and November 2019, latest data indicates. India’s big gold purchase from IMF was the last in November 2009 when it bought 200 tonnes.

Safety of its forex asset is the prime reason that central banks park foreign exchange assets in the form of gold. “While safety and liquidity constitute the twin objectives of reserve management in India, return optimisation is kept in view within this framework,” the RBI said in its December report on management of foreign exchange reserves.

RBI is among the tenth largest holder of gold reserves among central banks globally, according to the latest release by the World Gold Council with USA and Germany among the top holders.

Ever since uncertainty over the dollar outlook mounted after the US-China trade war concerns in 2018, central banks across the globe started buying gold to diversify their foreign exchange reserves base. The RBI also started buying gold after a long gap. The surge in foreign inflow and low yield on overseas sovereign bonds may have led to RBI buy gold. India’s reserves rose by $64 billion in 2019. The central bank does not disclose its volume of gold purchase at the same frequency as foreign exchange reserves. Value of gold in reserves rose by $6.2 billion in 2019.

At $27.4 billion in value, gold, which is revalued every week linking it to the London Bullion market prices, accounts for 5.98 per cent of the total forex reserves of $467.5 billion as of December 27, 2019.

As at end September 2019, the RBI held 618.17 tonnes of gold, with 325.87 tonnes being held overseas in safe custody with the Bank of England and the Bank for International Settlements, while the remaining gold is held domestically, according to RBI’s latest report. “In value terms, the share of gold in the total foreign exchange reserves increased marginally from about 5.59 per cent as at end-March 2019 to about 6.14 per cent as at end-September 2019,” it said.

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