Central banks are on a buying-spree in the gold market. For the third consecutive year, gold buying by central banks topped 1,000 tonnes. In 2024, central banks purchased a record 1,180 tonnes of gold after buying 1,082 tonnes in 2022 and 1,037 tonnes in 2023.
Here’s how much gold countries have in their kitty. The US is the largest holder, with 8,133 tonnes of gold reserves valued at $682,276 million, while India has 876 tonnes, valued at $73,498 or nearly $73 billion of gold holdings!
But, why are central banks going gaga over gold?
Gold has always been a reserve asset for the global banks. Of late, inflation and geopolitics emerged as the two main reasons for central banks accumulating gold.
Central Bank’s Gold Buying in Recent Times
Inflation in post-Covid years led to gold becoming a haven for governments’ reserve assets due to uncertainty and unpredictability. Russia’s invasion of Ukraine in 2022 and the geo-political tensions escalating with Israel, China, and Taiwan undergoing varying levels of conflict, the central banks resorted to accumulating gold in large numbers.
Our own government has been relying on gold for long. Talking of recent times, in 2024, India became the second largest gold buyer after Poland, which purchased 89.54 tonnes of gold. India bought 72.60 tonnes, and China ended up buying 44.17 tonnes.
Source: WGC
Gold Holding of Indian Government
And, what about India’s gold reserves and where are they stored?
The Reserve Bank held 854 metric tonnes of gold as of September 2024, with 510 metric tonnes held domestically. India still has 324 tonnes of its gold stored in the vaults of the Bank of England and the Bank for International Settlements (BIS), both based in the UK.
But, why the Bank of England? Some of the world’s biggest gold owners including the US, Germany, Italy, France, China, Switzerland and India, hold their gold in Bank of England vaults. After all, the London Bullion Market offering high liquidity and ease of trading is the largest global centre for over-the-counter wholesale transactions of gold.
India Transferring Gold from London
Something interesting happened with India’s gold reserves in 2024.
India brought back a large amount of gold in two consignments in 2024. In May 2024, India remitted 100 tonnes of gold from the UK and another 102 tonnes moved to India in October. In total, in 2024, India transferred roughly 200 metric tons of gold from London to its Indian vault. This was the largest gold repatriation by India since the 1990s.
A significant geo-political event occurred just before India decided to transfer gold from London to Indian vaults. At the time, the RBI stated that it was done because Indian vaults had sufficient capacity.
So, what was the event? The US and its allies blocked around $300 billion worth of Russian foreign exchange assets, including gold, in 2023, which may have sparked concern among governments.
Foreign assets parked abroad could be blocked at any time as was seen in Russia’s case. RBI’s choice to bring a portion of its reserves back to India likely reflects a more balanced strategy to protect against these risks while maintaining flexibility for international transactions.
Global central banks hold gold as reserves, similar to the way you and I hold them. Central banks are significant gold holders, accounting for approximately a fifth of all gold mined throughout history. Central banks worldwide are storing gold to protect against potential trade wars and geopolitical tensions, including those arising from Donald Trump’s second presidency. Why not you?
Gold Holdings by Central Banks: 2024
Source: WGC; Sorted on total gold reserves (Tonnes)
Also Read: Gold vs. Sensex: A 20-year analysis reveals crucial lessons for asset allocation
How Much Gold Can You Keep at Home
Wait! Unlike the government, you do not have the liberty to buy unlimited gold. In 2016, India’s Ministry of Finance provided clarifications of the quantity of gold that individuals can keep at home.
Income Tax Law allows no limit on holding of gold jewellery or ornaments by anybody provided it is acquired from explained sources of income including inheritance. Also, it was clarified that jewellery and ornaments to the extent of 500 grams for married lady, 250 grams for unmarried lady and 100 grams for male member will not be seized, even if prima facie, it does not seem to be matching with the income record of the individual.
To be clear as far as seizure is concerned, the officer searching has the discretion not to seize even higher quantity of gold jewellery based on factors including family customs and traditions. Importantly, married ladies receiving jewellery in the form of ‘stree dhan’ during their long married life on various occasions like the birth of a child, birthdays, marriage anniversaries, etc., and accumulated over years are excluded.
So, go ahead and ensure you have adequate allocation to gold in addition to stocks and bonds. Rather than chasing returns or checking the gold rate today to see if you can enter for quick gains, a better approach is to allocate your savings across assets based on your risk tolerance and goals. Each asset be it stock, bond or gold has its role to play in your long-term goals. And gold definitely has a place in it. That too for different reasons as compared to, let’s say, stocks.
As they say, the thumb rule to invest in gold should be – Buy stocks for good times, and gold for bad times.
If the good times continue, you will do well as you own high-risk – high-return assets like stocks. And that’s wonderful.
But if bad times come calling, then gold will play the role of safeguarding you.
And that, dear reader, is what a good allocation strategy can do for you.
Happy investing!
All data from the World Gold Council ( gold.org)