Chennai: While central banks turned net sellers after a gap of 10 years, the Reserve Bank of India bought 6.8 tonnes of gold during the pandemic-hit September quarter. In fact India has bought a total of about 30 tonnes since March this year.
India was among the six central banks that increased their reserves in Q3 by a tonne or more. India bought 6.8 tonnes of gold in the quarter when the gross purchases by all the banks totaled a modest 33 tonnes. United Arab Emirates, Qatar, Kyrgyz Republic, Kazakhstan and Cambodia were the other buyers.
Earlier, in February RBI had bought 6.8 tonnes taking the total gold reserves to 641.8 tonnes. As on October 9, 2020, gold reserves have increased to 670.1 tonnes, as per the data of RBI. In the past seven months, RBI has bought close to 30 tonnes of gold in staggered purchases.
India has been buying gold in smaller tranches since 2017. In 2019, the bank had bought 34.5 tonnes and in 2018, 42.5 tonnes. In 2017 it had bought 0.3 tonnes. Prior to that, RBI had purchased 200 tonnes in 2009.
However, in the September quarter, Central banks turned net sellers of gold for the first time since Q4 2010. Against a net purchase of 141.9 tonnes in the same quarter last year, banks made a net sale of 12 tonnes. Turkey and Uzbekistan accounted for the bulk of sales. Central banks of the two large buyers- Russia and China - also have not been buying gold for some time.
According to the World Gold Council, Covid-19 continued to inflict widespread economic hardship, and this pre-occupied central banks and governments around the world.
“Uncertainty has been elevated by the pandemic, motivating many investors – including central banks – to seek assets that will diversify and protect the value of their portfolios in times of crisis. Central banks have been particularly hard hit by the low and negative interest rates on sovereign bonds, which make up the largest proportion of reserve assets for many,” said WGC.
According to Rahul Bajoria, chief India economist, Barclays, increasing gold holdings is part of RBI’s long-term strategy of diversifying foreign reserves. “Given the increase in foreign reserves of RBI for the past one-and-half years, gold holdings too might continue to grow. RBI has been buying bonds of developed nations, making deposits with other central banks and IMF as well as increasing gold holdings,” he said.
While RBI has been increasing gold holdings in smaller tranches, the government has been issuing sovereign gold bonds. In the past few months, it has been issuing bonds every month.