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RBI gold reserves’ value drops by 29%

Mumbai, Apr 19 (): RBI’s gold reserves worth Rs 1.8 trillion were wiped out.

The global price of gold slipped by 29% due to which the gold it held worth $34.08 billion now stands at $24.17 billion. International gold prices crashed following reports that Cyprus may sell its gold reserves to curb its growing fiscal deficit. This figure is in comparison with that of September 2011. It then held gold worth 557.75 tonnes valued at $1900/ounce and today it stands at 1,347.95/ounce.

Banking sectors say that RBI had gained largely in the past from buying gold. The prices kept going up. Cyprus may sell gold worth about €400 million (Rs. 2, 840 crore) to cover its fiscal deficit. If the 13.9 tonne sale takes place, this will be the single largest disposal by a central bank in recent times. France sold 17.4 tonnes in 2009.

Since 1990, RBI gold was 20% of RBI’s total forex reserves. It gradually dropped to 3% in September 2008. It bought from IMF around 200 tonnes which took the holding to 8%.

Central banks buy gold to be used in times of crisis and also as an investment. Apart from gold, it holds US treasury bills, sovereign bonds and foreign currency assets.

The World Gold Council says that Central banks own 19% of gold mined. After the crash these banks lost $773 billion and left holding $7.5 trillion. It held 48.3 trillion worth gold.

In 1991, India’s balance of payment towards countries could not be met. It then resorted to 67 tonnes of gold being pledged by the central banks of Switzerland and England. India’s Forex reserves which stand at $293 billion are more than adequate to meet the obligations.

The fear among the investors is that other euro nations will follow suit. However, there is a spurt in buying jewellery due to which retailers are happy but still the margins are under strain. Investors trading in gold have moved to realty stocks.