RBI's 2009 gold bet adds sheen to india's reserves

The Reserve Bank of India (RBI) is sitting on a staggering Rs 15,000-crore gain on its 200-tonne gold purchase in October 2009, owing to the peak levels the metal is currently being traded at.

The share of gold reserves to the overall reserves (worth $316.80 billion), which RBI currently holds, has doubled since 2009. This has raised the country’s foreign exchange reserves. According to World Gold Council data, RBI is 10th among central banks, in terms of holding gold as reserve asset. With 2,814 tonnes, the International Monetary Fund (IMF) is the third-largest holder. If one includes the IMF, RBI is the 11th-largest holder.

 

When RBI had bought the gold, some had raised doubts over the timing of the purchase, since gold prices were high. However, RBI saw a near 50 per cent appreciation on its investment of $6.7 billion to buy gold from the IMF just 21 months ago. The gains are calculated considering the currency fluctuation.

The rupee was trading at around 47 against a dollar in October 2009, and at 44.3 against a dollar on Thursday. RBI had then spent around Rs 31,490 crore to buy 200 tonnes of gold, at an average price of $1,045 an ounce. With on Thursday’s international price of gold at $1,660 an ounce, the worth of RBI’s 200-tonne gold purchase stood at $10.64 billion, or over Rs 47,145 crore, considering on Thursday’s rupee-dollar exchange rate.

The share of RBI’s gold reserves to the overall reserves of $285 billion in October 2009 rose from 3.61 per cent to 7.79 per cent, according to July 29 data. Currently, RBI has 558 tonnes of gold reserves. RBI values its gold holdings at global market prices. RBI’s foreign exchange reserves comprise foreign currency assets, gold, special drawing rights—an international reserve currency floated by the IMF—and RBI funds kept with the IMF.

RBI’s decision to shore up its gold reserves needs to be seen in the context of other central banks across the globe increasing their gold reserves. Among these were the central banks of China, Russia and a few countries in the European Union which were anticipating debt crises. In 2008-2009, China increased its gold holdings by 75.69 per cent (by weight), Russia by 18.78 per cent, the Philippines by 18.50 per cent and Mexico by 108.91 per cent.

In March 1994, the share of gold to India’s total reserves was 20.86 per cent. By the end of June 2009, gold accounted for only 3.7 per cent of the total reserves. Gold came to the rescue of the country in 1991, when India faced its worst ever balance of payment crisis.

The IMF had, in September 2009, said it wanted to sell 403 tonnes of its gold reserves, or one-eighth of its total holdings, to boost its finances on a long-term basis and to raise money to increase lending to various nations. Under the concessional lending facility, IMF was scheduled to lend at zero interest through 2011 for all low-income members to help them tackle the impact of the financial crisis.

A committee set up by a group of central banks overseeing gold sales by the IMF had allowed the fund to sell 400 tonnes of its gold annually and 2,000 tonnes during the five years starting September 27 2009.