Why Is RBI Buying Tons of Gold? Is India Preparing for a Crisis?
The price of gold in India soared on Thursday reaching Rs 88,285.00 for 10 grams of gold 24K. This is mainly due to increasing investor interest in gold as the gold price index has been going up since the beginning of February. There's additional contributing factors to this spike in gold prices too. Investors looking for assets during uncertain trade-inflation scenarios have capital from Canada, China, and India pouring into the gold market. Moreover, gold miners have started selling gold to the market.
The Reserve Bank of India’s gold buying strategy has been consistent over the years. If media sources are accurate, then in 2024 alone, the RBI bought almost 73 tons of gold, which is more than what China has bought by over two folds. But why is the Reserve Bank increasing gold reserves? Why is gold being stored in India? Is there some sort of a crisis Modi’s government is prepping for? The answer is quite revealing.
This is of course, does not elucidate why then, is Reserve Bank of India buying so much of gold, and for what purpose, does India need to be storing tons and tons of gold? Is there a financial catastrophe the Modi government is looking to take head on?
In World Gold Council's report, the Reserve Bank of India (RBI) alone is said to have purchased an extra 8 tons of gold, in addition to the 53 tons of gold which was purchased worldwide that same month in November 2024. It seems like reserve banks are on a buying spree.
After the US elections, the gold prices did experience a drop and several central banks were encouraged to buy gold in reserve. Just like everyone else, the RBI is buying gold as a protection asset. Consequently, India’s gold reserve now amounts to a staggering 883 tons with an internal reserve of 510 tons.
India has proceeded to fetch its gold reserves abroad alongside buying gold. The RBI has repatriated gold in the last year, bringing back 102 tons from the vaults of the Bank of England in London. Since September 2022, a total of 214 tons of gold has been repatriated to India.
When it comes to the global circumstances, holding gold reduces the risk of inflation and currency depreciation, especially during times of geopolitical unrest. Considering his recent announcement of additional tariffs, the world is now questioning the possibility of a trade alongside the already ramping fears. In times of heightened socio-political tensions, gold acts as a reliable source of investment guaranteeing safety and security.
What is interesting is that, not only India but the world’s central banks were net buyers of gold in 2024. For the 3rd year in a row, gold net purchases surpass 1,000 tons tranche. The Reserve Bank of India (RBI), as other central banks, is also buying gold gaining because purchasing gold enables them to eliminate the negative effect of currency fluctuations on their reserves.