Reports suggesting India's central bank sold gold to bolster its foreign exchange reserves have been refuted by the government and sources, who labeled the claims as inaccurate.
The controversy stems from a Bloomberg Economics analysis of public data, which indicated the Reserve Bank of India (RBI) may have sold approximately $12 billion worth of gold reserves in the two weeks leading up to May 22.
Senior economist Abhishek Gupta noted that despite a recent increase in India's gold import tariff—which typically boosts the book value of central bank holdings—the recorded value of its gold reserves showed an unusual decline. This logical inconsistency suggested the central bank might have been selling gold to secure liquidity.
Market sensitivity to such reports is not unfounded. As the world's third-largest oil importer, India faces significant current account deficit pressure amid escalating Middle East conflicts, particularly concerning Iran and the potential closure of the Strait of Hormuz.
To stem the rupee's decline, RBI Governor Sanjay Malhotra has faced difficult choices. Since late May, the rupee has fallen to a record low beyond 95.17 against the US dollar. While intervention has helped the rupee outperform other Asian currencies, it has come at the cost of a sharp depletion in foreign exchange reserves. Market analysis suggests that with liquid forex assets running low, the central bank's prioritization of more liquid foreign currency assets, even potentially involving gold reserves, has a certain operational logic.
The gold sale rumors have escalated into a political issue domestically, with the opposition Congress party criticizing the current government, arguing that using gold reserves signals extreme economic distress.
In reality, the RBI's gold management strategy has been undergoing a structural shift in recent years. As of the end of March, the RBI held 880.52 metric tons of gold, with about 77% stored domestically, a significant increase from 66% just six months prior. This large-scale "gold repatriation" reflects India's risk-averse stance amid global geopolitical turmoil. Particularly after witnessing Western nations freeze Russian assets, India has accelerated efforts to bring gold stored at the Bank of England and the Bank for International Settlements back home to ensure absolute asset sovereignty.
Currently, the Indian government has implemented measures such as raising fuel prices and doubling the gold import tariff to curb capital outflows. Analysts note that as long as oil prices remain high and geopolitical risks persist, the pressure on the RBI to rebuild its foreign exchange reserves will be a long-term challenge.
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