India in global gold buying spree : RBI 2nd largest buyer of yellow metal
- 28 May
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In 2021, the RBI purchased 77.5 metric tonnes of gold, the second most tremendous amount ever after purchasing 200 metric tonnes from the International Monetary Fund in 2009. According to Goldhub, India has the ninth-largest official gold reserves in the world. Goldhub is the official website of the World Gold Council, which houses all precious metals data. Indians have become a significant gold market. People in India are not just ardent buyers of gold but also are selling gold ornaments and exchange cash against gold jewelry in times of need. More than 60 percent of India's foreign exchange reserves are held in gold, and one-third of the country's population owns more than 5 grams each. Aside from being a major buyer of gold, India is also one of the largest markets of gold.
The Reserve Bank of India (RBI) retains a significant amount of gold reserves as a safety net. According to a study recently released, the RBI purchased the most gold on a half-yearly basis this year. The largest buyer, the Central Bank of Thailand, bought 90 metric tonnes of gold, while the RBI bought 77.5 metric tonnes, bringing the RBI's total gold reserve to 754.1 tonnes at the end of December 2021. As a result, bullion accounts for a large portion of India's gold.
Also Read :- How Gold Fares as an Investment in Economic Crisis
The central bank is also said to be buying more gold right now. In terms of past acquisitions, the RBI purchased 41.68 tonnes of gold in 2020 and 34.52 metric tonnes in 2019. As a result, the central bank's yellow metal reserves were 676.6 tonnes at the end of 2020, accounting for 6.9% of the RBI's total reserves. Looking at some of the other central banks, Hungary purchased 63 tonnes of gold last year, tripling its gold reserves, Brazil purchased 62 tonnes, Uzbekistan purchased 30 tonnes, and Kazakhstan purchased 15 tonnes.
Since last year, reports have been circulating that the RBI is considering raising its gold reserves. The RBI allegedly considered increasing gold reserves from 6.5 percent to 10% of total reserves. As a result, even when the economy was shaky last year, the bank was laser-focused on the precious metal to maintain a firm grip on the economy. However, India has always been an importer of gold, with many commentators arguing that the country has not created enough supply to meet demand. In India, many people are selling gold ornaments to famous second hand gold jewelry buyers. Follow us on Facebook, Twitter, YouTube & Instagram to never miss an update from 24KARAT.
The RBI, which has been buying gold since 2009, has succumbed to the allure of the yellow metal. The purchase volume in the previous calendar year was the second largest in the new millennium. In addition, India purchased 200 tonnes of gold from the International Monetary Fund (IMF) in 2009. The fact that the RBI bought such a massive quantity of gold demonstrates that India is trying to resist the current global financial crisis.
Central banks around the world predicted that inflation rates would rise dramatically in the first half of the year, and they were correct. In May 2021, India's inflation rate was at its highest in a decade. Central banks focused on gold since it is a safe investment against inflation and does not lose value during economic downturns. As inflation falls, the RBI may reduce the rate at which it purchases gold.
Unlike the previous few years, buyers in 2021 were not limited to emerging markets. There was significant buying from developed market central banks for the first time in almost a decade. Singapore's Monetary Authority purchased gold for the first time in 21 years, and Ireland has done so since 2008.
Why is the RBI buying gold when the global demand for yellow metal is so low? For starters, the economic prognosis for 2022 appears dubious as global inflation continues to rise. Gold maintains a fine balance in central banks' overall reserves during an inflationary time, as growing global inflation causes the value of all major currencies, including the US dollar, to fall.
Furthermore, due to large debt levels in every major economy, these countries' central banks are unable to boost interest rates. As a result, investors are more ready to park money in gold and silver than in industrialized countries' bonds, which yield negative or insignificant returns due to lower nominal interest rates combined with growing inflation.
Every major central bank retains a percentage of its reserves in gold as a hedging strategy during times of economic instability and turmoil. According to the Goldhub report, last year was the eleventh consecutive year of net acquisitions, with central banks purchasing a total of 5,692 tonnes.