Why India secretly flew its 200 tonnes of gold stored in England back home

On Dhanteras (October 29), most Indians purchase gold and welcome it into their homes, on the belief that it will bring good luck. Perhaps, it’s the same for the Reserve Bank of India. The country’s central bank announced that it has brought back to India another 102 tonnes of gold, which were kept in safe custody in the Bank of England and the Bank for International Settlements.

This news comes after the RBI made a similar announcement back in May when it said that it had moved 100 tonnes of gold — the most significant gold repatriation since the 1990s.

As the gold makes a homecoming, we analyse why the precious metal was kept overseas and what are the reasons for bringing it home now.

How much gold was brought back?

The RBI, according to a Times of India report, relocated 102 tonnes of gold from the Bank of England’s vaults to secure facilities within India. The RBI carried out the transportation of the yellow metal amid complete secrecy and detailed security measures, including specialised aircraft and secure protocols.

The yellow metal has now been stored at safe locations within India. Traditionally, India’s gold is stored at RBI’s vaults in Mumbai and Nagpur.

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Interestingly, this movement of gold comes after a similar mission had been carried out in May, bringing back 100 tonnes of gold from the UK. At the time, it was reported that it was one of the largest gold relocations since the 1990s.

With this move, India’s current total gold reserves stand at 854.73 tonnes of which 510.5 tonnes is held domestically. Of the 344.23 tonnes that are overseas, 324.01 tonnes of gold is kept in safe custody with the Bank of England and the Bank for International Settlements (BIS), while 20.26 tonnes are held in the form of gold deposits.

Why was this gold kept abroad?

Most countries store some of their gold reserves in foreign vaults to spread out risk and facilitate international trading. For India, besides the Bank of England, it stores gold reserves at the Bank for International Settlements (BIS) in Basel, Switzerland, and the Federal Reserve Bank of New York in the United States.

This gold was moved to the Bank of England in 1990 amidst the country’s foreign exchange crisis. At the time, PM Chandra Shekhar’s government was in power at the Centre and the country’s balance sheet was a mess. The country’s central bank had less than $1 billion in forex reserves, barely enough to meet import requirements for three weeks.

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Amid this financial crisis, RBI Governor S Venkitaramanan presented the idea of raising money from international banks by offering gold as collateral. Realising this was a practical step, in May 1991, the government decided to lease smuggled gold confiscated by customs to the State Bank of India which, in turn, sold it to a Swiss bank to raise $200 million. The RBI then negotiated with the Bank of England and the Bank of Japan for an additional loan of $400 million, which would be secured by the gold collateral.

Even though the loan was paid back by November 1991, India decided to keep the gold in the UK for convenience. Storing gold abroad makes it easier for the country to trade, engage in swaps and earn returns.

So, why bring back so much gold now?

Bringing the gold home has great significance attached to it. Bringing the gold home in recent times — from May — is a reflection of India’s economic growth and a belief in this growth story. When India moved the precious metal abroad, the country’s economy was in the doldrums. But not anymore. As the Times of India reports, this transfer is an indication of India being strengthened in the economy.

Sanjeev Sanyal, an economist, said that India holding most of its gold is reflective of “the long way since we had to ship out gold in 1991”. According to him, the shipping out of gold in 1990-91 was a moment of failure that “we will never forget”. “This is why this shipping back of gold has a special meaning,” he said.

For those of my generation, the shipping out of gold in 1990-91 was moment of failure that we will never forget. This is why this shipping back of gold has a special meaning pic.twitter.com/ufMCjHFSMH

— Sanjeev Sanyal (@sanjeevsanyal) May 31, 2024

But there’s more. The timing of bringing the precious metal home is also important. It is being done amidst the Russia-Ukraine war and the rising tensions in West Asia, especially between Israel and Iran and its proxies — Hamas and Hezbollah.

Historically, gold is considered a safe-haven asset — meaning it can retain, or even gain value during periods of economic downturn. Also, the precious yellow metal is universally recognised and cannot be devalued through overprinting like currency notes. It also serves as an effective hedge against inflation. Compared to other stocks, gold prices are less volatile, making it a reliable choice. Gold’s liquidity makes it an attractive option for investors seeking immediate access to cash. As a time-tested store of value, it remains a popular asset class among major economies.

What do officials say?

When asked why the RBI decided to move gold back to India, Shaktikanta Das, the governor of the central bank, said that the amount of gold held outside India had increased due to purchases and since there was available storage capacity within the country, a portion of the gold was decided to be stored domestically.

“The quantum of gold held by RBI was static for a long time. As data shows, RBI was buying gold as part of its reserves management, and the quantum of gold held outside was going up. We have domestic capacity, and we felt part of the gold should be stored within the country. There is nothing more to it,” he said, as per a Times of India report.

P Chidambaram, the former finance minister, also commented on the earlier shifting of gold, saying it made no difference. “Our gold is in a London vault. It is being brought back to an Indian vault. It makes no difference at all,” he told the media when asked about it.

What will RBI do with the gold now?

Now, that the RBI has moved the gold to its own vaults, it can use it to help control local gold prices. It can further be used as a safeguard against any type of financial crisis and to control inflation as well as currency devaluation.

With inputs from agencies