Indian foreign exchange reserves have reached a historic peak with the high of over $700 billion on October 4, 2024. Share of gold in India’s forex reserves constitutes more than 209%, peaking since 2018. The mirror this trend reflects is one of strategic shift in the manner in which India has begun to manage its forex reserve.
Share of gold in India’s forex reserves now stand at $65.76 billion, whereas at the end of December 2018, it stood at $21.15 billion. The increase, of course is substantial and this clearly happens to be a coincidence, as Shaktikanta Das assuming the charge of being the RBI Governor as of December 2018. During his tenure, total foreign exchange reserves have surged by 78% from $393.735 billion as of December 2018 to $701.176 billion as of October 2024.
Gold holdings of the RBI increase to 822.10 metric tonnes in FY24. They had a level of 794.64 metric tonnes, or an addition of 27.46 metric tonnes, which the central bank repatriated from the UK in FY24. Hence, the share of gold in India’s forex reserves rose to 8.15% by end-March 2024 from 7.81% at the end of March 2023.
Share of gold in India’s forex reserves and gold price significantly increase
Besides, 408.31 metric tonnes of gold is deposited locally and another 387.26 metric tonnes are kept in the vaults of Bank of England and BIS. On Wednesday, gold prices rose by Rs 350 in MCX, while Comex gold traded above $2,675 per ounce that rose 0.55%. Gold bulls expect the Federal Reserve to continue its course of interest cuts, and hence, a supportive trend for gold is expected to rise further.
The safe haven demand for gold in the Middle East geopolitical situation has further supported upward momentum in prices. “On that basis, gold would continue trading with a positive bias,” said LKP Securities’ Jateen Trivedi, who also believes that the dovish stance of the Federal Reserve has supported this uptrend.
The increasing gold reserves by India manifest an evolving strategy in the management of forex. Such new approach developed by RBI towards gold purchase has strengthened the financial security of the nation and places India at par with the primary reserve holders in the world.
Diversification of forex to gold helps hedge against currency volatility as well as acts as a shield during periods of economic uncertainty. Current prices of gold are likely to remain in the upward trend in the near future due to globalization.
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