India Jumps on the Gold Bandwagon

The Reserve Bank of India has jumped on the gold bandwagon.

Since December 2017, the Indian central bank has added 50.4 tons of gold to its reserves.

India bought 8.2 tons of gold in January and February of this year and analysts project that pace to pick up. Economist Howie Lee told Bloomberg he expects the RSB to add as much as 1.5 million ounces of gold to its reserves in 2019. That comes to about 46.7 tons.

India’s gold reserves currently stand at a record high of almost 609 tons, according to data from the IMF.

Indians traditionally have a strong affinity for gold. While Americans generally think of gold as a luxury item, many Indians view it as a necessity. In the Asian nation, buying gold is not just for the rich. In fact, a recent survey shows that possessing the yellow metal is a universal phenomenon across all income classes in India. But the Indian central bank hasn’t added a significant amount of gold to its reserves since 2009. That year, the RBI bought 200 tons of gold from the IMF.

Why have Indians suddenly turned to gold? According to an article at The Hindu BusinessLine, the motivation is much the same as in countries like Russia and China. The Indians want to minimize exposure to the US dollar.

There is a definite pattern apparent in the countries that are leading this central bank gold hunt. Countries with a strong anti-American sentiment, that wish to reduce their dependence on the US dollar, top the list of nations that have been adding gold to their forex reserves in the last few years.”

Through the first quarter of this year, Russia has increased its gold hoard by 56 tons. This continued a 2018 trend. Russia has been endeavoring to reduce its exposure to the dollar over the last several years by buying gold and selling off US Treasurys. Russian gold reserves increased 274.3 tons in 2018, marking the fourth consecutive year of plus-200 ton growth. In February 2018, Russia passed China to become the world’s fifth-largest gold-holding country. Over the last decade, Russia has quadrupled its bullion reserves.

The Central Bank of China has also been adding to its official gold reserves over the last several months. China bought gold for the fourth straight month in March, adding another 11.2 tons of the yellow metal to its reserves.

In total, the world’s central banks accumulated 651.5 tons of gold last year. The World Gold Council noted that 2018 ranked as the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record. That trend appears to have continued into 2019 with central banks globally adding 90 tons of gold in the first two months of this year.

According to The Hindu BusinessLine, US policy and growing wariness of the dollar has also motivated India to jump on the gold bandwagon.

It is obvious that the trade war unleashed by the US has made emerging economies, including India, nervous about future policies of the US government. The clear anti-globalization stand taken by the current US government, and the scant respect displayed for policies that promote peace and inclusive growth have made it imperative to reduce dependence on the US currency; that can turn volatile in tandem with the policies of the government. The mounting debt in the US and unbridled printing of notes for successive quantitative easing programmes since 2009 have also eroded the intrinsic worth of the dollar significantly.”

As The Hindu BusinessLine article points out, individual investors should take note of these central banks buying gold.

It signals that gold retains its position as a premier store of value. An asset that is a store of value is one which is expected to retain its purchasing power in the future.”

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