The Reserve Bank of India (RBI) bought about three times more gold in the first half (H1) of the current financial year vis-a-vis the year-ago period, betting on the safe haven asset class in the face of the pandemic’s deleterious impact on the global economy.
India’s central bank mopped up 15.24 tonnes of the yellow metal in H1 (April-September 2020), against 5.61 tonnes in the year-ago period, as per RBI’s Report on Management of Foreign Exchange Reserves.
In fact, the central bank purchased more of the yellow metal (34.84 tonnes) in the six months ended March 2020 versus 26.12 tonnes in the year-ago period. This accumulation of gold should be seen in the context of the World Health Organisation declaring the Covid outbreak a Public Health Emergency of International Concern on January 30.
In the aforementioned six-month period, gold price moved up from $1473.45 per ounce as on October 1, 2019, to $1698.95 as on March-end 2020 in the global market.
Price of yellow metal
In the first half of the current financial year, the price of the yellow metal moved up from $1578.55 as on April 1, 2020, per ounce to $1886.90 as on September 30, 2020. Within this six-month period, the precious metal tested a peak of $2067.15 on August 6.
As of September-end 2020, Reserve Bank held 668.25 tonnes of gold (including gold deposits of 9.04 tonnes) versus 653.01 tonnes as of March-end 2020 and 618.17 tonnes as of September-end 2019.
In value terms (dollar terms), the share of gold in the total foreign exchange reserves increased from about 6.40 per cent as of end-March 2020 to about 6.69 per cent as of end-September 2020, according to the report.
Meanwhile, at the end of June 2020, the foreign exchange reserves cover of India’s imports increased to 14.8 months from 12 months at end-March 2020.
According to IMF, import cover means the number of months a country can continue to support its current level of imports if all other inflows and outflows cease.