In recent times, gold has become an essential component of the Reserve Bank of India (RBI)’s reserves strategy. The central bank has been buying gold in a significant way over the past few years, though the process has been intermittent, and there are even speculations in 2026 about pulling back.
Then comes the simple yet complex question of why the central bank is still turning to such archaic investments and what the temporary slowdown means for it.
Why is RBI buying so much gold?
RBI’s gold buying spree has taken its reserves from 822.1 tonnes in FY24 to 879.58 tonnes in FY25 and to 880.52 tonnes in FY26. They have even repatriated around 100 tonnes of gold from abroad back to India in FY25.
This steady build-up places India among the top ten gold-holding central banks globally, a notable shift for a country that held closer to 300 tonnes just two decades ago.
What is driving this gold rush?
There are quite a few reasons behind the trend of central banks buying gold in recent years.
- Diversification of reserves away from the US dollar
- To act as an inflation hedge and hedge against currency depreciation
- Geopolitical risk protection and uncertainty associated with sanctions
- Establish confidence in reserve adequacy amid a volatile international environment
Over 3/4th of the central banks surveyed by the World Gold Council expected the percentage of US dollars in global reserves to decrease over the next five years, while the percentage of gold increased in its place.
Has the RBI ever sold gold instead of buying?
Recently, some reports suggested that the RBI might have slightly decreased its physical gold reserves in May, while the central bank stated that their reserves remain unchanged. Officials cited valuation techniques and currency fluctuations as reasons behind the slight change in reserves, without mentioning selling gold at all.
Even though accumulation has been the trend over time, it has been anything but continuous. At the same time, gold reserves can be utilised to defend the rupee and conserve other reserves when there is pressure on the currency.
What does this mean for you as an investor?
As you would expect, the RBI’s gold policy matters to you as an investor who holds rupees or gold.
- It has been observed that sustained purchases by central banks have historically helped support the prices of gold internationally as well as locally
- A stronger base of gold reserves increases confidence in the rupee in turbulent times
- Individual investors tend to follow the same trend and hold gold in order to diversify portfolios
- Import costs and rupee depreciation have pushed the domestic gold prices up by nearly 50% in the last year
For an individual investor, gold acts as insurance in case of rupee instability, despite the overall portfolio being dominated by equity and mutual fund investments.
Should you follow RBI’s lead?
Holding a small portion of gold, whether it is physical, digital gold, or gold investment instruments, may provide stability amidst currency or market fluctuations, when combined into a diversified portfolio. Financial planners often suggest capping gold at around 5 to 10% of a portfolio, enough to cushion against shocks without crowding out growth-oriented assets like equities.
This is also worth remembering during the festive or wedding season, when demand for physical gold in India typically rises regardless of what central banks are doing. It works even at the city-level. For those tracking the gold price in Delhi, they will find that the rates respond to festive demand.
Conclusion
RBI’s gold policy follows the global trend of diversification of reserves and reducing dependency on US dollars, despite its irregularity. Temporary pullback in May 2026, however, shows that gold can serve as an effective tool of policy rather than a one-way bet.
For you as an individual investor, the conclusion is even simpler – gold is still an asset to consider when constructing a portfolio.