MC Analysis: India’s gold reserves hit record high as central banks hedge dollar risk

What is the attraction of the yellow metal for central banks? The ECB survey found that two-thirds of central banks invested in gold for diversification, while two-fifths did so to protect against geopolitical risk. We had pointed out that recent US policies, such as unilateral decisions on tariffs, high deficits and erratic decision-making have all resulted in a move away from dollar assets. We had said that central banks worldwide are voting with their feet, and they’re walking away from the dollar.

The Indian central bank, too, has been increasing its holdings of gold hand over fist. Cast your eyes on the accompanying table, which shows that RBI’s gold holdings went up from 822.1 metric tonnes as of March 31, 2024, to 879.58 tonnes as of March 31, 2025. Over the period June 2020 to March 2025, RBI’s physical gold holdings went up by 218.17 tonnes, or by slightly less than a third. In contrast, over the previous five years, RBI’s gold holdings had increased by 103.66 tonnes or just 18.6 percent.

Gold has added considerably to its glitter for the RBI. The share of gold in its net foreign assets increased to 12 percent at the end of March 2025 from 8.3 percent at the end of March 2024, mainly due to revaluation gains from gold prices.

Indeed, the rise in gold reserves has paid off handsomely for central banks, as gold prices have soared on its safe haven status in a troubled global economy. For the RBI, the value of its gold holdings went up by 48 percent in 2024-25, in dollar terms.

Commenting on its survey, the World Gold Council pointed out that central banks have accumulated more than 1,000 metric tonnes of gold in each of the last three years, adding that this represented a significant rise from the 400-500 tonne average in the preceding decade. It added, ‘This marked acceleration in the pace of accumulation has occurred against a backdrop of geopolitical and economic uncertainty.’

Therein lies the key to the sudden increase in gold reserves. Central banks worldwide are executing a historic financial pivot, channelling reserves away from dollar-denominated assets and into gold at unprecedented rates. This is no cyclical or transient phenomenon—it’s a structural shift emanating from the sea change in geopolitics and economic and trade policies in recent years.

Are they also selling US Treasuries? We pointed out that the UK overtook China as the second-largest foreign holder of US Treasuries in March 2025. In fact, China has slowly reduced its holdings of US Treasury securities. Before the pandemic, it was the biggest foreign holder of US Treasury securities, and its holdings declined by 40 percent from their peak in 2013. This appears to be a long-term, calculated retreat coinciding with a deteriorating US-China trade relationship and rising strategic tensions.

India, interestingly, has taken a divergent path. Its holdings of US Treasuries have increased substantially over the years, although they have recently plateaued. Taken together with Japan being the number one foreign holder of USTs and the UK being number 2, it’s likely that much depends on how countries view their relationship with the US.

Data last week showed that the value of US Treasuries held at the New York Fed on behalf of foreign central banks fell to $2.88 trillion. That’s the lowest since January. Including agency debt and mortgage-backed securities, total foreign central bank custody holdings have declined to $3.22 trillion—the lowest since 2017. A decline of $90 billion since March, over half of it in Treasuries, followed the market shock after President Trump’s “Liberation Day” tariffs on April 2.

However, while central banks are diversifying, private investors and other countries continue to buy US debt, and the dollar remains the dominant reserve currency. Still, the trend points to a slow but steady erosion of the dollar’s supremacy. The share of the dollar in global central bank forex reserves, according to the IMF’s COFER (Currency Composition of Official Foreign Exchange Reserves) data, fell from 65.4 percent in 2016 to 57.8 percent in 2024.

The final twist in the tale is that the RBI has been bringing back its gold stored abroad into its own vaults. This has accelerated after the Ukraine war, when Russian foreign reserves were frozen. It is a significant signal of the lack of trust in foreign custodianship.

We are in the midst of a slow but unmistakable monetary realignment, with gold emerging as the asset of choice for central banks navigating a turbulent geopolitical time. While the dollar remains dominant, its unchallenged supremacy is no longer guaranteed. In a world where trust in existing financial structures is fraying, gold is not just a safe haven; it’s increasingly becoming a statement of strategic financial autonomy.