RBI holds steady on gold purchases amid price forecast and geopolitical tensions

Synopsis

The Reserve Bank of India has paused its gold purchases in FY26, anticipating a price decline due to easing geopolitical tensions and potential US Federal Reserve rate cuts. Despite a global trend among central banks to increase gold reserves, driven by its safe-haven status and diversification benefits, the RBI seems to be waiting for a more favorable entry point.

Mumbai: India's central bank hasn't added to its gold stash in FY26 yet, likely tying its purchase decision and timing to an expectedly southward trend in the prices of the safe-haven asset that surged more than 80% in five years amid geopolitical and trade uncertainties. The Reserve Bank of India's (RBI) total gold holdings amounted to 880 metric tonnes, and it continued to be at that level between end-March and end May this year, showed the latest data.

This is the longest pause in more than a year. It had paused purchases during October-December 2023 and its holdings were steady at 804 metric tonnes during that quarter.

The RBI's decision may have been influenced by the latest pricing commentary on gold. Research reports by Citi, a research arm of Fitch. Motilal Oswal Securities and ICICI Bank forecast a fall in gold prices from Thursday's levels of around $3,445 per troy ounce-on likely easing of geopolitical tensions and a possible rate cut by the US Federal Reserve.

Agencies

A survey of nearly half the central banks by the World Gold Council (WGC) mid-June found that 95% of respondents believe that managers of sovereign reserves globally will increase their gold reserves in the coming 12 months, up from 81% (of the respondents) last year. "Gold's performance during times of crisis, its use as an effective portfolio diversifier, and its role as a long-term store of value were the top three most relevant reasons for central banks to hold gold," the respondents to the WGC survey said.

The recent central bank survey 'Trends in Reserve Management 2024' revealed that geopolitical escalation is the most significant risk perceived by reserve managers. The rising frequency of geopolitical conflicts has highlighted the issue of weaponisation of reserves, with sanctions affecting the accessibility and usability of foreign assets. Against this backdrop gold is the safest investment option, they believe.

"Reserve managers across the globe earmark their assets into multiple tranches such as liquidity tranche to address liquidity needs and investment tranche to pursue higher returns," a research note published in the central bank's latest annual report said. "Gold's property of being a safe-haven asset has led to significant gold purchases by central banks."

The share of gold in net foreign assets increased to 12% as at end-March 2025 from 8.3% as at end-March 2024, according to RBI's latest annual report.

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