'India's central bank will buy more gold this year'

Following Russia and China, India has also become active in the gold market again. Last year, the Reserve Bank of India bought 42 tonnes of gold and some expect that it will add another 45 tonnes of gold to its reserves this year. This estimate is based on the central bank's purchases during the first two months of this year.

The Indian central bank bought 200 tonnes of gold from the IMF in one go in 2009. After that, nothing happened for a long time, until the central bank became active in the gold market again last year. Since then, India has continued to replenish its gold reserves almost every month, reaching a total of almost 609 tonnes at the time of writing.

India further expands gold reserves (Source: Bloomberg)

More central banks are buying gold

Last year, central banks worldwide added 651.5 tonnes to their gold reserves. That was the second-highest volume ever measured by the World Gold Council. Russia bought a record amount of precious metal, while other countries added gold to their stockpiles for the first time in years. China became active in the gold market again after a year and a half, while countries such as Poland and Hungary made purchases for the first time in a long time.

Citigroup expects central banks to buy even more of the yellow metal this year, possibly as much as 700 tonnes. According to Howie Lee of the Overseas Chinese Banking Corp, there is now a clear trend among central banks. Opposite Bloomberg he had the following to say about it:

"There seems to be a kind of pattern emerging, not just at the Reserve Bank of India, that central banks are expanding their gold holdings when the global macroeconomic situation is uncertain. It is no coincidence that China has been one of the biggest buyers of gold in recent months. It is in a trade dispute with the United States and may need to diversify for trillions in dollar reserves."

India expands gold reserve

India could not be left behind, because with a gold reserve of 609 tonnes, the country has only 6.4% of its total reserves in precious metals. That is proportionally more than China, but much less than a large number of Western countries. The structural purchases by central banks lay a solid foundation for the gold market, as they tend to hold the precious metal for a longer period of time. Unlike investors, they will not simply sell positions if the Gold price Drops.

The Indian central bank wrote in August in its annual report that it continues to diversify its foreign exchange portfolio. Part of this was the 'activation of the gold portfolio'. The precious metal has no counterparty risk and is therefore interesting as an alternative reserve. Since 2009, central banks have been net buyers of gold.