RBI ranked sixth among central banks in buying gold abroad

The Reserve Bank of India (RBI) bought 7.5 tonnes of gold last October, buttressing its foreign exchange reserves to $450 billion.

The RBI holds 625.2 tonnes of gold, forming 6.6 per cent of its forex reserves, said the World Gold Council (WGC) in a report based on data central banks shared with the International Monetary Fund about their holdings last week.

RBI was a modest player in buying gold abroad compared to other major central banks, adding to its reserve in October after a gap of five months. However, it became the sixth largest buyer when it purchased 25.2 tonnes in first 10 months of 2019 to hedge government’s sovereign gold bond issue.

The central banks of China, Russia, Kazakhstan, Turkey, Poland bought more than India in 2019. "In November, central banks reported adding 27.9 tonnes, on a net basis. On a year-to-date basis, this brings cumulative net purchases to 570.2t, 11 per cent higher the same period in 2018 (515.2t)," according to the WGC.

In 2019, Uzbekistan and Venezuela sold 16.6 tonnes and 30.3 tonnes of gold.

Institutional investors in exchange traded funds (ETF) were the second biggest buyers of gold in 2019. Retail demand for jewellery and investments continued to be high, but ETFs overtook them by buying 400 tonnes in 2019.

The WGC report said ETFs will continue to buy gold in 2020. It said that, “Though most global equity indices finished the year at or near all-time highs, gold shone, realising its strongest price increase in ten years. The strength of gold was mainly the by-product of a dovish shift in monetary policy. Our research indicates that a shift from a hawkish or neutral stance to a dovish one has historically led gold to outperform."