Gold News - Did RBI sell Gold to defend Forex Reserves? BE report coverage

3 Jun 2026 , 12:47 PM

India’s foreign exchange management strategy may have taken an unusual turn as the Reserve Bank of India (RBI) reportedly sold a portion of its gold reserves to strengthen foreign currency holdings and support the rupee amid rising geopolitical and economic pressures.

According to an analysis by Bloomberg Economics, the RBI likely sold nearly $12 billion worth of gold reserves during the two weeks ending May 22 while simultaneously adding around $7.5 billion to its foreign currency assets. While the central bank has not officially confirmed the transaction, the move suggests a proactive effort to bolster liquidity and safeguard India’s external position during a period of heightened global volatility.

Why RBI May Have Sold Gold

The reported sale comes at a time when India’s economy is facing multiple external challenges.

The ongoing conflict in the Middle East has pushed crude oil prices higher, raising concerns about India’s import bill and current account deficit. As the world’s third-largest importer of crude oil, India remains highly sensitive to energy price shocks.

Additionally, concerns surrounding disruptions in the Strait of Hormuz, a critical global oil shipping route – have increased uncertainty in currency markets. At the same time, foreign portfolio investors have been withdrawing capital from emerging markets, including India, putting additional pressure on the rupee.

In such an environment, the RBI may have opted to convert a portion of its gold holdings into more liquid foreign currency assets, giving policymakers greater flexibility to intervene in currency markets if needed.

Rupee Under Pressure

The Indian rupee touched record lows near ₹97 against the US dollar during May as rising oil prices and capital outflows weighed on sentiment.

The RBI has actively intervened in the foreign exchange market to smooth volatility and prevent disorderly currency movements. Analysts believe maintaining adequate foreign currency reserves remains a top priority as policymakers seek to preserve financial stability.

Market participants are also closely watching whether the central bank could consider additional measures, including:

• Further forex market interventions
• Attracting foreign capital inflows
• Raising overseas currency resources
• Potential monetary policy adjustments if inflation risks intensify

Oil Prices Remain a Key Risk

For India, crude oil remains the most important external risk factor. Higher oil prices increase demand for US dollars, widen the trade deficit, and put pressure on foreign exchange reserves. If geopolitical tensions persist and crude prices remain elevated, India’s external balances could face sustained stress.

This explains why maintaining sufficient foreign currency liquidity may currently be more important than expanding gold holdings.

RBI Still Holds Significant Gold Reserves

Despite the reported sale, gold continues to be a major component of India’s reserve portfolio.

As of March-end, the RBI held 880.52 tonnes of gold. Approximately 77% of these holdings are stored domestically, while the remainder is held with international institutions such as the Bank of England and the Bank for International Settlements.

The sale, if confirmed, would represent only a portion of India’s overall gold reserves and would not materially alter the RBI’s long-term diversification strategy.

What It Means for Gold Investors

The development creates a mixed outlook for gold investors.

Factors Supporting Gold Prices

Several factors continue to support gold demand globally:

• Ongoing geopolitical tensions
• Elevated inflation concerns driven by higher energy prices
• Continued central bank diversification into gold
• A weaker rupee boosting domestic gold prices

Potential Headwinds for Gold

Investors should also monitor several risks:

• Easing geopolitical tensions could reduce safe-haven demand
• A stronger US dollar may pressure global gold prices
• Higher global interest rates could limit upside
• RBI gold sales could temporarily influence domestic market sentiment

Overall, broader macroeconomic factors are likely to remain more influential than any single central bank transaction.

Higher Gold Import Duties Could Push Domestic Prices Higher

India recently increased gold import duties as part of efforts to manage imports and protect foreign exchange reserves. The full impact of the higher duties has not yet been fully reflected in domestic prices because many dealers were still selling older inventory purchased at lower duty rates.

As these inventories are gradually depleted, the higher import costs are expected to be passed on to consumers, potentially supporting domestic gold prices further.

Silver Could Face Greater Supply Constraints

Industry participants believe the impact of import restrictions may be more pronounced in silver than in gold.

If investment demand rises significantly, silver supply constraints could emerge, potentially causing silver exchange-traded funds (ETFs) to trade at premiums to their underlying asset values.

Investors are closely monitoring silver availability and pricing dynamics as demand continues to strengthen.

Temple Gold Monetisation Proposal Gains Attention

The India Bullion and Jewellers Association (IBJA) has proposed bringing part of India’s estimated 1,000 tonnes of temple gold into the formal economy.

The proposal aims to:

• Reduce reliance on imported gold
• Lower pressure on foreign exchange reserves
• Utilize idle domestic gold holdings productively
• Support employment across the jewellery manufacturing sector

Importantly, the proposal focuses on monetisation and economic utilization rather than government acquisition of temple assets.

What Investors Should Watch

Several factors will determine the direction of gold prices, the rupee, and India’s reserve strategy in the coming months:

• Movement of the rupee against the US dollar
• Crude oil price trends
• Developments in the Middle East
• RBI reserve and intervention data
• Foreign investor flows into Indian markets
• Domestic gold and silver price movements
• Progress on temple gold monetisation initiatives

If Bloomberg Economics’ assessment proves accurate, the RBI’s reported gold sale highlights a strategic shift toward preserving foreign currency liquidity and ensuring exchange-rate stability during a period of heightened geopolitical uncertainty.

The move underscores the challenges posed by elevated oil prices, capital outflows, and pressure on the rupee. While gold remains a critical component of India’s reserve portfolio, policymakers appear focused on maintaining sufficient foreign currency resources to navigate potential external shocks.

For investors, the key variables remain crude oil prices, rupee movements, central bank actions, and the evolving geopolitical landscape—all of which will continue shaping the outlook for gold and India’s external stability.

 

With inputs taken from Bloomberg Report