New Delhi: The Reserve Bank of India (RBI) purchased 19 tonnes of gold in the March quarter. This is one of the biggest buying of the precious metal by the central bank.
Financial experts are attributing the latest buying spree to several reasons. The Business Standard said there are multiple reasons, some of which could be summarised as below:
Long-Term Investment: Gold has a long history of holding its value over time. While its price can fluctuate in the short term, it has generally shown positive growth over extended periods. Central banks usually view gold as a long-term investment that can provide stability and a hedge against inflation.
Following a Trend: India is not alone in its central bank gold buying. Many other central banks, particularly those in emerging economies, have been increasing their gold holdings in recent years. This trend suggests a broader shift in how central banks view gold as a valuable addition to their reserves.
Diversification of Foreign Exchange Reserves: A core function of a central bank is managing foreign exchange reserves. These reserves are used for various purposes, including maintaining currency stability and intervening in the foreign exchange market. Traditionally, these reserves have been dominated by currencies like the US dollar. However, holding a basket of assets, including gold, can be a way to hedge against fluctuations in any single currency. Gold is often seen as a safe-haven asset, meaning its value tends to hold steady or even increase during times of economic turmoil.
Geopolitical Tensions: Rising geopolitical tensions can also influence central bank gold buying. Gold is seen as a politically neutral asset, meaning its value is not directly tied to the performance of any specific country. In times of heightened geopolitical uncertainty, central banks may increase their gold holdings as a way to safeguard their reserves.
