Gold Reserves in India; These Vaults are Heavy!

"The beauty about gold, though, is that in all states from uncertainty to conviction, it never for once gives up its lustre" ― Ufuoma Apoki.

A gold reserve is the quantity of gold the country's central bank holds to support its national currency value. From 2000 to 2022, the gold reserve in India averaged 488.46 tonnes. According to trading economics, the gold reserve reached its highest spot in the first quarter of 2022, when its value was around 760.40 tonnes. 

As per the reports of the Economic Times, about 453.52 tonnes of India's gold is safely held by the Bank of England, whereas 295.82 tonnes of gold is kept domestically. A gold reserve is a unique tool that helps the government counteract rising inflation. 

Keep reading to learn more about gold reserves in India and other countries.

Why are gold reserves in India important?

Gold reserves are an essential asset for any country as they help boost the economy and provide a sustainable cushion during an economic crisis. Maintaining a large gold reserve thus becomes vital as every country aims to strengthen its currency, especially when gold prices flare up. All economies try to upkeep as much gold as possible; India is no different in that context. 

There are many other benefits of gold reserves in India, which are mentioned below:

Hedge Against Inflation
One of the most essential benefits of gold reserves is that it helps a country to hedge against inflation. When a country starts experiencing rising inflation, the central government tries to buy more gold to combat inflation. When supply during an inflationary period decreases, the demand for gold eventually increases. Besides this, when investors feel that the currency value will fall, they start buying more gold against the currency.

Determine The Value Of Currency
Local currency and gold are strongly related. For instance, when there is high demand for the production of gold in the manufacturing sector, it will lead to higher gold prices. Banks rely on printing more money to buy gold; thus, an excess supply of fiat currency is created, and when it happens,  the currency's value fluctuates.

Reduces The Value Of Local Currency
When the central bank plans to buy more gold, it indirectly reduces the currency's value. This is because banks need more cash to buy gold. So, they start to print more cash, leading to an excess supply of that currency.

Worldwide Acceptance
Gold has worldwide acceptance and can regain its value regardless of political, economic, or geographical location. This is why Indian households prefer gold as a financial investment and protection.

From the above list of benefits, it is clear that gold reserves are crucial for every country. Having enough gold in reserve will help the country beat inflation, boost its currency value, and much more. The RBI is constantly striving to buy gold as it is a safe investment instrument. For the last few years, the RBI has either bought the US dollar or opted for gold during any financial crisis.

Gold reserves by different countries of the world

The US is at the top of the list, with 8133 tonnes of gold. The gold reserve of the US is more than the combined value of Germany and Italy. The US has the highest gold allocation of around 76% of its foreign reserves among all countries. 

Russia has bought the most gold in the last 5 years, increasing its total reserves by almost 300% since 2011. As the recent data suggests, after Russia, countries like Turkey, India, and Poland are also strategically growing their gold reserves. 

Here is the list of the top 10 countries and their gold reserves. Though the top 10 rankings have seen some minor changes, the position holders have remained the same since 2009.

Top 10 countries with their gold reserves in tonnes

For thousands of years, gold has been an acceptable means of exchange. Countries need to maintain good levels of the world's gold reserves for both political and economic reasons. Having substantial gold reserves helps the country fight hyperinflation.

Gold returns are highly profitable compared to equities, corporate or government bonds, and even cash. The last 5-year report by the World Gold Council (WGC) indicates that gold is performing well in the market and has outperformed bonds and cash. 

Gold reserves by the country are of utmost importance as they help the country improve its economy and value in the global system. As of now, India is the 9th country with the largest gold reserve, followed by the Netherlands.

As they say, "If you don't own gold, you neither know history nor economics". 

Gold or Mutual Finds - Which is Better? 

Indians have a propensity to buy and invest in gold. However, it is essential to acknowledge all the options, especially mutual funds, since they are rising rapidly, and then choose carefully. 

Below, we have made a comparison table to highlight the key differences between investments in gold and investments in mutual funds.

The Bottom Line 

When a country has enough gold, it can rest assured that it can deal with any type of adverse situation. The Reserve Bank of India constantly tries to maintain the country’s position in the list of top 10 countries with the highest gold reserves in the world. 

For those who want to learn more about their financial stability and wish to go for a safe investment, Finology brings a wide range of financial products. You can check the products to pick the one that suits your needs. We hope the article will help the readers gain in-depth knowledge about India's gold reserves. Let us know what you loved about the article in the comments!