Why Russia, China and India need more gold

Why Russia, China and India need more gold

The central bank of India plans to join its counterparts in Russia and China in seeking for gold this year as top economies diversify their reserves. The record holdings and lending of the economy leading nations support the worldwide bullion demand for gold. As Business Times writes in the article China, Russia, India Central Banks Need More Gold, according to Ross Strachan at Capital Economics Ltd, the Reserve Bank of India's purchases are part of a wider picture across developing economies that are looking at de-dollarizing their foreign-exchange reserves. He added that the RBI's buying trend can be sustained for a number of years in relatively small quantities, as part of a long-term diversification.

According to Howie Lee, an economist at Oversea-Chinese Banking Corp., India's Reserve Bank is projected to purchase 1.5 million ounces in 2019 which is about 46.7 tons with an outlook based on extrapolating amounts bought in the first two months of this year.

The data from the International Monetary Fund showed that India's gold reserves now reached its highest record of around 609 tons following its purchase increase of 1bout 42 tons in 2018 and two additional increases in January and February. In 2018, Russia purchases 274 tons and it made additional purchases this year. China's central bank continued its buying spree which started in December.

According to the projection of the Citigroup Inc, the purchase of the global official sector will reach 700 tons in 2019 led by China, Russia, and India, as well as Kazakhstan, Iran, and Turkey.

The increasing geopolitical and economic instability caused the central banks to look seek for alternatives as they focus on investing in safe and liquid assets. According to the World Gold Council, the second-highest total of purchases on record was made last year after governments globally added 651.5 tons of bullion.

Goldman Sachs Group Inc. said that further inflows are expected to run as high as 2018 due to purchases of China, Russia, and Kazakhstan.

According to Mr. Lee, there seems to be some form of a pattern, not just the RBI that central banks tend to increase gold reserves when the global macroeconomic environment is uncertain. He also said that it's no coincidence that one of the biggest buyers of gold in recent months was China, which is in the midst of trade tensions with the U.S. and may have been seeking to diversify its trillions of dollar reserves. He added that India might follow the same tactic of diversification. The United States trade war with China disrupted supply chains which caused a global economic slowdown.


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