India’s foreign exchange reserves will take a $3.5-billion hit on account of the sharp decline in international prices of gold over the past week.
Gold constituted about 9 per cent of India’s cumulative foreign exchange reserves of $292.3 billion on March 15, 2012, according to the latest RBI data.
But since that date, gold has lost 13.4 per cent in international markets. This implies that the value of India’s gold reserves has fallen to about $22.8 billion. Even after this fall though, RBI is still sitting on a 33.3 per cent gain on the gold acquired three years ago. India purchased 200 tonnes of gold from the International Monetary Fund at an average price of $1,045 per ounce on November 3, 2009.
Gold has accounted for an increasing share of India’s foreign exchange reserves in recent years. From a low of 3.5 per cent of the forex reserves in 2005, gold holdings shot up to 6.9 per cent by end-2009 as RBI acquired more gold from the International Monetary Fund. That proved a good move, in hindsight.
Between January 1, 2010, and April 1, 2013, gold prices have shot up by 45.8 per cent. As a result, the precious metal has accounted for an increasing share of India’s foreign exchange reserves, touching an all-time high of 10.6 per cent in the third quarter of 2012.