Jun 2, 2026
The Reserve Bank of India (RBI) likely sold $12 billion of its gold holdings and purchased $7.5 billion in foreign currency assets during the two weeks ending May 22, according to a report from Bloomberg Economics (BE) cited by Kitco News. The analysis, released on a Tuesday, used publicly available data to suggest the central bank offloaded a significant part of its gold reserves to protect its foreign currency assets from the effects of the ongoing conflict in the Middle East.
Abhishek Gupta, senior India economist at BE, noted that the selling occurred even after a recent increase in import duties on gold, which would normally support the value of the RBI’s bullion and dollar holdings. The RBI did not respond to requests for comment. The BE report indicated that the sales highlight concerns over sustained capital outflows and rising oil prices linked to the Iran war and the closure of the Strait of Hormuz. The report also stated that the RBI is prioritizing liquid foreign currency reserves as a larger current-account deficit pressures the rupee.
RBI Governor Sanjay Malhotra is considering various options to stabilize the currency, including an interest-rate hike and raising dollars from overseas investors. The RBI’s interventions in foreign exchange markets have helped the rupee outperform most Asian peers since May 20, when it hit an all-time low. On the Tuesday of the report, the rupee was down 0.2% to 95.17. India is the world’s third-largest oil importer, and the war in Iran along with the Strait of Hormuz closure are driving up energy costs and weakening the currency.
Gupta stated that the RBI will likely try to rebuild its foreign exchange reserves when possible, such as during periods of dollar weakness, renewed foreign capital inflows, or lower oil prices. As of the end of March, the RBI held 880.52 tonnes of gold, with 77% stored domestically and most overseas holdings at the Bank of England and the Bank for International Settlements, according to an April report. Further measures to support the rupee are expected to be announced as soon as this week.
Sudden changes to import policies in the world’s second-largest gold and silver market this month have caused ripple effects across India’s metals and currency sectors. Mariya Paliwala, Senior Editor at Juris Hour, wrote that domestic policy measures aimed at preserving reserves and regulating precious metal inflows have sparked discussions about their impact on local supply dynamics, price transmission, and exchange-traded fund (ETF) valuations. Paliwala noted that the most immediate effect has been on domestic prices. Despite a net 9% increase in import duties, prices initially rose only 5% to 6%, attributed to existing inventories bought at earlier rates and weak consumer willingness to absorb sharp price increases. As lower-cost stocks dwindle, domestic gold and silver prices are expected to fully reflect the higher duties.
Other analysts are looking to broader global changes, such as the resolution of the Iran conflict, as a key driver for higher prices over the medium term. Paliwala highlighted that market experts are also focused on ETF premiums. Restrictions on silver imports have raised concerns that supply could tighten if demand rises sharply, potentially creating distortions between physical availability and ETF pricing. An industry source warned that silver could face greater challenges than gold due to more significant supply restrictions, and if investor demand rises aggressively, ETF premiums may increase substantially. However, if demand remains moderate, pressure on ETF pricing could be contained.
Investors are monitoring several factors, including interest rate decisions by the U.S. Federal Reserve under new leadership, policy actions by major global central banks, fluctuations in the U.S. dollar against the Indian rupee, Comex prices, and oil prices. Paliwala concluded that while policy changes may cause temporary pricing distortions and volatility, the broader investment case for precious metals remains supported by inflation concerns, monetary policy uncertainty, and global economic conditions.
The India Bullion and Jewellers Association (IBJA) has proposed monetizing nearly 1,000 tons of idle temple gold, suggesting it could ease import pressure and protect jobs in the small jeweller and artisan segment. IBJA Gujarat State President Nainesh Pachchigar said gold is the second-largest contributor to foreign exchange outflow, with India importing about 800 tonnes yearly. The IBJA proposes using domestic gold stocks held by trusts, noting that many trusts hold large quantities of idle gold. The association stated it is not seeking permanent transfer of ownership but a structured monetization mechanism to keep the metal in the formal economy.
Pachchigar appealed to jewelers to stop bullion trading and not sell bullion directly to customers, and to limit bullion sales to under five grams. This advisory was issued after the duty hike to curb speculative demand. He requested that jewelry sales continue only for genuine customer needs, such as ceremonies, while limiting non-essential sales. Pachchigar also highlighted the potential impact on employment in the jewelry sector, noting that if the temple gold monetization scheme and other proposals are adopted, employment opportunities could be protected.
The Indian rupee, the main issue the import duty hikes aimed to address, hit a fresh all-time low on a Thursday, pushing domestic gold and silver prices higher. The rupee fell to 96.923 per U.S. dollar on May 20 and hovered near the 97 level before recovering some losses in the following days.
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