Gold Dominance: RBI Forex Reserves Hit 20-Year Peak

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AuthorKavya Nair|Published at:
Gold Dominance: RBI Forex Reserves Hit 20-Year Peak
Overview

India's foreign exchange reserves climbed $392 million to $687.2 billion, fueled by a significant $1.6 billion surge in gold value. Gold now comprises 16.2% of reserves, a two-decade high, driven by price gains and increased tonnage. This strategic diversification aims to reduce dollar reliance and secure reserves, even as RBI sells US Treasuries to support the rupee.

Gold's Ascendancy in Reserve Stack

Reserve Bank of India's foreign exchange reserves rose $392 million in the week ending January 9, reaching a total of $687.2 billion. This increase partially reversed a substantial $9.8 billion decline from the previous week. The growth was primarily driven by a $1.6 billion surge in the value of gold holdings, which more than offset a $1.1 billion dip in foreign currency assets.

Strategic Diversification Underway

The composition of India's reserves has seen a notable shift. Gold's share has rebounded from a low of approximately 2.8% in 2007 to an impressive 16.2% as of January 2026. This marks the highest proportion of gold in reserves in over two decades. The increase is attributed to both higher international gold prices, which rose about 5.5% over the past month, and a significant accumulation of physical gold. Holdings have expanded from around 357 tonnes in the early 2000s to an estimated 880 tonnes by late 2025, with accelerated buying evident through fiscal year 2025.

Dollar Reliance and Rupee Support

While gold's presence has widened, foreign currency assets, primarily held in U.S. Treasuries, continue to form the largest component of the reserves. However, data indicates India's holding of U.S. Treasuries has fallen below $200 billion. Bankers suggest the RBI has been actively selling liquid U.S. Treasuries to finance interventions in the foreign exchange market. These interventions are aimed at bolstering the rupee, which has faced pressure following the announcement of additional tariffs on Indian imports. This strategy reflects a broader objective to reduce dollar-heavy concentration, introduce a counterparty-free hedge, and secure custody of assets, thereby creating a more balanced reserve structure.

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