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Rising gold price vindicates RBI’s investment plan.

Date: 12-11-2018
Subject: Rising gold price vindicates RBI’s investment plan
MUMBAI: The Reserve Bank of India’s gold purchase plan seems to be paying off as the monthly valuation gains have touched an eight month high with investor demand for a safe haven rallying the yellow metal. 

The value of gold in the country’s foreign exchange reserves rose 1.7 per cent in three weeks from October 12 to November 2 at $20.9 billion. Gold prices rose 2 per cent during the same period. 

India’s reserves are at $393 billion and gold comprises about 5 per cent of the total reserves. 

According to the central bank, gold, including the gold deposits placed abroad, is revalued on the last business day of the month at 90 per cent of the average of the gold price quoted daily by London Bullion Market Association for the month. The rupee equivalent is determined on the basis of the exchange rate prevailing on the last business day of the month. Unrealised gains/ losses are credited/debited to the currency and gold revaluation account. With currency markets turning volatile since December after the US Federal Reserve started raising interest rates, which caused foreign investors to pull out their funds from the emerging markets including India, the Reserve Bank, like many other central banks, started buying gold as a hedge against volatile currency markets. 

It was for the first time in nine years that the RBI was buying gold. It has bought 9.5 lakh troy ounce of gold since December 2017. 

Central banks across the globe, including RBI, have added a net 193.3 tonnes to their stock of gold reserves in the first six months of 2018, up 8 per cent from the same period a year ago, according to a recent report by the World Gold Council. 

The International Monetary Fund (IMF) in its 2018 Global Financial Stability Report highlighted the relevance of gold in a country’s foreign exchange reserves, both for the longterm and near term – from a tactical and strategic perspective. 

Economists reckon that investing in gold is a prudent treasury move by the central bank at a time of rising yields. 

RBI has already sold close to $17 billion worth of US treasury securities between April and August, data with the US treasury department showed. This could help the central bank rein in mark to market losses. 

Source: economictimes.indiatimes.com

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