Tumbling global gold price eats into RBI’s fores reserves 

 The value of gold reserves with the Reserve Bank of India (RBI) has dropped 29% after international gold prices crashed last week following speculation that Cyprus may sell its gold reserves to rein in its ballooning fiscal deficit.

The value of RBI’s gold reserves—557.75 tonnes—declined from $34.08 billion (around Rs.1.84 trillion today) in September 2011, when the international gold price peaked at $1,900.23 per ounce (28.35 gram), to $24.17 billion early this week, when the yellow metal tumbled to its 26-month low of $1,347.95 per ounce.

Economists and analysts are playing down the impact of this on the Indian central bank’s reserves as the decline in value is notional. In fact, RBI has made substantial gains from the acquisition of gold reserves in the last one decade, they said.

“Looking at the average cost of acquisition of RBI’s gold holdings, gold has brought significant gains to it as the prices have gone up in the last decade. The current loss is only notional,” said Gaurav Kapur, India economist at Royal Bank of Scotland NV.

On Wednesday, the gold price rose 1.32% to $1,386 per ounce. At this price, RBI’s gold reserves are valued at $24.85 billion, down 27.08% from its September 2011 peak.

Last week, the European Commission said Cyprus may have to sell gold worth about €400 million (Rs.2,840 crore) to rein in its fiscal deficit. If the 13.9 tonnes sale takes place, this will arguably be the largest such disposal by a euro zone central bank since France sold 17.4 tonnes in the first half of 2009.

Gold as a percentage of RBI’s total reserves has been declining since the mid-1990s. It constituted 20% of the reserves in 1994, but dropped to 2.98.% by end-September 2008. RBI then bought 200 tonnes of gold from the International Monetary Fund (IMF) in November 2009, following which the share of the metal in the total reserves rose above 8%.

The 2009 gold purchase from IMF was seen as part of efforts by global central banks such as those of China, Russia, India and some European Union nations to shore up gold reserves and safeguard 

gaurav singh tomer 

pgdm 2nd sem