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September 4, 2018Key Gold Headlines

India Central Bank Buys Gold for the First Time in Nearly a Decade

The Reserve Bank of India (RBI) bought gold for the first time in nearly a decade during its last fiscal year.

The Indian central bank added 8.46 tons of gold during the fiscal year ending June 30, according to its latest annual report. The additional yellow metal brings India’s total gold reserves to 566.23 tons.

The last time the RBI bought gold was in November 2009. The Economic Times of India called the central bank’s decision to add to its gold reserves “significant.”

According to the paper, “Economists reckon that investing in gold is a prudent treasury move by the central bank at a time of rising yields.”

Meanwhile, the RBI has been dumping US Treasuries. According to Treasury Department data, the Indian bank has sold off close to $10 billion in US debt. This is similar to moves made by the Russian central bank.

The Russians have reduced their holdings of US bills, notes and bonds by about four-fifths.  Russia dumped nearly half of its US debt in April. In just that one month, the Russians sold off $47.4 billion of its $96.1 billion in US Treasuries. Gold is “a 100 percent guarantee from legal and political risks,” Central Bank of Russia First Deputy Governor Dmitry Tulin said at the time.

The Russians have also been buying gold in an effort to diversify their foreign currency holdings and minimize their dependence on the US dollar. The Russian central bank added 26.1 tons of gold to its hoard in July, according to International Monetary Fund. It was the largest increase in Russian gold holdings since last November.

According to the Economic Times, the Indian central bank is likely diversifying its reserves with gold in order to shield against a decline in bond values. The US Treasury Department plans to auction off around $1.4 trillion in Treasuries this year and expects the pace of borrowing to continue for the next several years. This huge increase in supply will almost certainly push bond prices down and boost yields.

Axis Bank chief India economist Saugata Bhattacharya called diversifying reserves to include gold “a prudent measure at such times.”

The addition of gold to RBI’s forex reserves is probably a diversification of assets for their deployment, keeping in mind both the build-up of reserves in 2017 as well as the evolving global risks, including market volatility and rising policy rates in the US.”

Like Russia, China and other countries, the Indians could also be seeking to limit its exposure to the US dollar system. In June, the country announced it would go through with the purchase of a Russian-made air defense system despite threats of US sanctions.

In all our engagements with the U.S., we have clearly explained how India and Russia’s defense cooperation has been going on for a long time and that it is a time-tested relationship,” Indian Defense Minister Nirmala Sitharaman said. “We have mentioned that CAATSA cannot impact the India-Russia defense cooperation.”

Even some of America’s closest allies have called for a de-dollarization of the world financial system. German foreign minister Heiko Maas recently called for the creation of a new payments system independent of the United States in the wake of the US withdrawal from the Iran nuclear deal.

India ranks 10th in the world in gold holdings.

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