Does RBI buying tonnes of gold signal a shift away from dollar?

Gold has been glittering of late.

Since the beginning of 2025, the price of the metal has risen by a whopping double digits.

The Reserve Bank is getting in on the action too – buying gold and bringing tonnes of it back from abroad.

So much so that some are questioning if this a concerted shift to get away from using the US dollar as a reserve currency.

But what happened? Why is the price of gold rising? Does RBI buying huge amounts of gold signal a shift away from the dollar?

Let’s take a closer look

What happened?

Though gold declined in late 2024 after Donald Trump was re-elected to the White House, the precious metal has been on a tear since the beginning of 2025.

Gold has risen over 11 per cent since the beginning of this year.

Monday alone saw gold prices spike 1.5 per cent.

As per Live Mint, gold on Wednesday hit an all-time high of Rs 85,880 per 10 grams.

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The development comes after US President Donald Trump announced plans to unleash a number of tariffs on steel and aluminium imports as well as reciprocal tariffs on nations.

Trump’s ‘America first’ policies are thought to have spooked investors – particularly when it comes to trade wars and inflation.

If such a shift were to take place—though experts believe it is unlikely—gold prices could surge dramatically.

Gold is thought to be a safe haven asset – particularly during times of volatility.

According to Live Mint, investors seem to be attempting to shift from stocks to gold in an attempt to diversify their portfolios.

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RBI buying, bringing back gold

The Reserve Bank of India, meanwhile, has spent the past year buying tonnes of gold.

According to Business Today, the central bank picked up 73 tonnes between January and November 2024.

This included eight tonnes of gold in November alone.

The RBI in 2024 was the second-largest buyer of gold – after the National Bank of Poland (NBP).

The central bank also brought back to India 102 tonnes of gold which had been kept with the Bank of England and the Bank for International Settlements between March and September 2024.

This came after the RBI earlier moved 100 tonnes of gold back to India from the Bank of England – the first time it did so since it pledged its gold in 1991.

As per The Times of India, by December 2024, the RBI was estimating to be holding 876 tonnes of gold.

That figure was 803 tonnes in December 2023.

The year 2024 witnessed the RBI buying the second highest amount of gold since it started purchasing the metal in 2017.

It was also the most gold it purchased since 2021 – when it had 754 tonnes in reserves.

As per DD News, the RBI’s gold reserves were valued at $70.893 billion in the week ending January 24.

As per Live Mint, gold currently comprises 11.35 per cent of the RBI’s total foreign exchange reserves.

So, why is the RBI buying up so much gold?

Some think the RBI is preparing for a move away from the US dollar as the dominant reserve currency of the world and a settlement mechanism.

On Wednesday, Congress MP Manish Tiwari, speaking in the Lok Sabha, enquired if this was indeed the case.

“This shift away from the dollar to gold, does it indicate a renewed search for an alternative international settlement mechanism being cost the dollar?” the Congress MP asked.

Finance Minister Nirmala Sitharaman denied such a motive.

“Gold is also kept in the Reserve Bank and gold is also being bought by the Reserve Bank. But beyond that, as regards an international currency or potential currency, there is not much for me to comment at this stage,” Sitharman said.

“I think it is very typical of India, particularly for households of small businesses and, it is normally said, women, but general households also, and women also, to invest in gold because they think it’s far more secure and far more liquid,” Sitharaman added.

Sitharaman said the RBI was focussing on balancing its portfolio and diversifying its reserves.

The Indian government earlier clarified that it was not pursuing a strategy of de-dollarisation.

“On de-dollarisation, the External Affairs Minister has made it clear that we don’t have any policy or strategy in this regard,” External Affairs Ministry spokesperson Randhir Jaiswal said.

Trump had warned Brics nations of sanctions if they attempted to start their own currency or undercut the US as the dominant reserve.

What’s the real reason?

As per DD News, the RBI is doing so to hedge its bets against inflation and reducing foreign currency risks – much like other central banks are doing.

The Central banks in November 2024 collectively bought 53 tonnes of gold, as per the latest World Gold Council (WGC) report.

As per The Times of India, central banks around the world bought 1,045 tonnes of gold in 2024 – the third straight year in which purchases surpassed the four figure level.

In Q4 alone the central banks bought 333 tonnes of gold.

As per Live Mint, the RBI uses the forex reserves to keep a check on the volatility in the rupee.

Experts say nations have realised the importance of keeping their currencies strong while facing inflation because of the dollar’s dominance.

“The buying of gold by central banks is driven by the need to diversify assets in which forex reserves are held,” Gaura Sengupta, chief economist at IDFC Bank, told Economic Times.

“The high concentration of foreign currency assets in securities such as short-tenor US treasuries opens up risks of revaluation loss when US Treasury yields rise.”

Experts think central banks will continue to buy gold in 2025.

“In 2025, we expect central banks to remain in the driving seat," Louise Street, Senior Markets Analyst at the World Gold Council, told the newspaper.

With inputs from agencies