India gets back its Gold

RBI Increases Gold Holdings for Greater Control

The Reserve Bank of India (RBI) has shared some significant news. By the end of 2024, the RBI held a total of 854.73 metric tons of gold. Out of this, 510 metric tons are now stored within India itself. Earlier, a large part of the gold reserves, around 324 tons, was kept safely with the Bank of England. This number has dropped from 524 tons, meaning the RBI has brought back about 200 tons to store locally.

Rising Share of Gold in Forex Reserves

Another important development is that the share of gold in the country’s total foreign exchange reserves is steadily increasing. It has risen from 8% to 9.3%. This is a positive sign because it shows that India is placing more trust in gold as a key component of its reserves. Until recently, about 60-65% of the country’s gold was held overseas, mainly due to the belief that it would be easier to trade or use internationally if it was stored with institutions like the International Bank of Settlement.

The Importance of Holding Gold Locally

One major reason for bringing more gold back to India is the idea of reducing “counterparty risk.” When gold is stored in another country’s custody, there’s always the risk that it might not be accessible when needed. Gold should be under the country’s control to ensure it is truly a reliable reserve. If another party holds it, there is always a chance, however slim, that they may refuse to return it. This highlights the importance of holding gold directly, without depending on anyone else.

Why Counterparty Risk Matters

Counterparty risk is a term used to describe situations where you depend on someone else to honor an agreement. Gold is one of the few assets that doesn’t come with this kind of risk. When you hold gold, it’s in your possession, and no one else can take it away or refuse to give it back. This is different from other assets like stocks or money in a bank account. When you have demat stocks or money in the bank, you don’t physically own them – you just have a claim to them. If something goes wrong, like a system failure or financial crisis, those assets may not be as secure.

Gold: The Safe Haven Without Counterparty Risk

Other forms of wealth, like real estate or stocks, carry risks related to third parties. Even property that is registered in your name could face legal issues. Gold, however, doesn’t have these problems. It is a unique asset class that remains under your control without relying on any other institution or party. This is why central banks and governments keep gold in their own vaults. The same reasoning can apply to individuals and corporations – holding physical gold can protect against uncertainties.

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