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Our gold reserves are still way below levels central bankers in the West are comfortable with. The US Federal Reserve holds nearly 80 per cent of its foreign reserves in bullion. The European Central Bank holds around a fifth. The French, Germans, Italians and the Dutch, however, retain well in excess of half their reserves as gold. China, which was widely expected to be the first to buy some of the 400 tonnes of gold the IMF is selling this year, has increased its holding by 76 per cent in the last six years. Efforts to keep the world economy afloat will, the IMF estimates, see public debt swelling by a third in the 20 biggest economies. This will exert unprecedented pressures on prices and exchange rates. It is a good time to get into gold.
Even if it means buying the stuff at record prices. The $1,045 an ounce the RBI paid for its October acquisition is just shy of gold's lifetime high in the open market. When an inert buyer stirs, two conclusions are unavoidable. One, gold has been gaining on its own, not merely because the dollar is weakening. And two, by locking $6.7 billion into bullion, the RBI expects the dollar tide will not ebb. Gold in the vault puts money a little further out of circulation because it is slightly more cumbersome to liquidate than, say, the euro. Buying gold, thus, makes more sense than hunting around for an alternative to the badly bruised dollar.
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