RBI seeks gold comfort over dollar assets

India's central bank has lately preferred gold to dollar assets. The Reserve Bank of India (RBI) has been adding gold to its reserves since the beginning of this fiscal year, while steadily lowering investments in US Treasury Securities over the same period, data from RBI and US Department of Treasury, respectively, showed.

RBI's gold holding crossed 880 tonnes after it added 600 kilograms since the beginning of this fiscal year, while its holding of US treasury securities is at seven-month low - at $219 billion. India's foreign exchange stockpile was worth $698 billion for the week ended October 10.

RBI added 200 kgs of gold in the week ending on September 26 and 400 kgs in the week ending June 27 this year. At the same time, RBI's investments in US treasury securities have declined for the months of July - the latest available data shared by the US Department of Treasury.

"There appears to be a policy of diversifying forex reserves. Gold is a good choice given also an upside in value, although that may not be a consideration for the central bank," said Madan Sabnavis, chief economist, Bank of Baroda. "From a market perspective there is uncertainty in the state of the US economy and implications of tariffs. Interest rate policy also is uncertain given inflation potential. This supports the action of buying gold."

India's central bank investments in US treasury securities are lower - at $219.7billion against $227.4 billion a month ago - and $238.8 bn a year ago, data from US Department of Treasury showed.

The Golden Lustre

The rise in gold prices is also reflected in India's gold reserves, which for the first time crossed a valuation of $100 billion to $102.365 billion as of October 10, central bank data showed. Gold forms 13.6% of RBI's forex reserves as on September 26, compared with 9.3% a year ago, when total reserves were at a record high.

Globally, central banks have continued to add gold to their reserves despite the rally in gold prices, as bullion is seen as a safe haven during economic uncertainty.

In August, global central banks added a net 15 tonnes to gold reserves, the World Gold Council said, using data from the International Monetary Fund and respective central banks, ET reported on October 7.

Total investments by central banks in US treasury bills are $9.1 trillion, with Japan holding the highest at 1.1 trillion, followed by the UK and China at $899 billion and $730.7 billion, respectively.