This Dhanteras, which marks the start of the Diwali celebrations with the traditional buying of gold and silver, the Reserve Bank of India (RBI) announced the transfer of an additional 102 tonnes of gold from the Bank of England’s vaults in London to secure locations in India.
This move follows the RBI's historic transfer of over 100 tonnes of gold from the UK to India on May 31, 2023, the first such operation since early 1991.
As with the previous transfer, the RBI and the Indian government conducted a covert operation, utilizing special aircraft and implementing extensive security measures to ensure the gold's movement was kept confidential.
At the end of September, of the 855 tonnes of gold held by RBI, 510.5 tonnes was held domestically. Source: REUTERS.
According to a report by The Times of India (ToI), authorities have hinted at further transfers of gold from the UK to India but noted that significant shipments are unlikely to occur this year.
Why does the RBI move gold from the UK to its vaults?
Since September 2022, India has imported 214 tonnes of gold as the Reserve Bank of India (RBI) and the government have aimed to safeguard their reserves amid rising geopolitical tensions worldwide.
A report from ToI indicates that many officials in the Indian government believe that, given the escalating geopolitical risks globally, it is wiser to retain gold domestically.
Gold is often viewed as a safe haven asset, maintaining its value even during economic downturns. The precious metal is recognized globally and cannot be devalued through excessive printing like currency. Additionally, gold acts as an effective hedge against inflation, and its price tends to be less volatile compared to stocks and other securities, making it a dependable investment choice.
Present Gold Holdings
As of September 30, 2024, the total amount of gold held in local safes reached 510.46 metric tonnes, marking a substantial rise from the over 408 metric tonnes reported on March 31, 2024. This trend indicates an increasing focus on India's management of its gold reserves.
Transition to Domestic Vaults
In recent years, India has been steadily transferring its gold reserves to domestic vaults, mainly situated in Mumbai and Nagpur. Notably, in FY24, the country relocated an extra 100 metric tonnes of gold from the UK to these local facilities. This transition occurs against the backdrop of increased global geopolitical tensions and represents one of the largest gold movements by India since 1991, when the nation was forced to pledge a substantial portion of its gold to resolve a foreign exchange crisis.
Total Gold Holdings
Alongside its domestic holdings, the RBI announced an increase of 32 metric tonnes in its gold reserves during the same six-month period, raising the total to 854.73 metric tonnes. This information was outlined in the half-yearly report regarding the management of foreign exchange reserves.
Gold Storage and Deposits
As per the RBI's disclosure, a total of 324.01 metric tonnes of gold are securely held with the Bank of England and the Bank for International Settlements (BIS). Furthermore, an additional 20.26 metric tonnes are held as gold deposits.
Rise in Gold's Proportion of Reserves
The proportion of gold in India's total foreign exchange reserves increased from 8.15% at the end of March 2024 to around 9.32% by the end of September 2024. This growth is due to an increase in both the quantity of gold held and a rise in gold prices.
Historical Background and Future Trends
As of March 2024, the RBI reported holding 413.79 metric tonnes of gold overseas, according to an annual report. In late May, sources revealed that a decision was made to decrease foreign holdings as part of routine review processes.
Confidentiality in Gold Transactions
Sources report that officials from the Ministry of Finance, the RBI, and other relevant agencies handle the movement of gold with great care, considering the commodity's high value.
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