MUMBAI – Despite rumors that the Reserve Bank of India may mobilize idle gold reserves and sell them to banks, the RBI clarified on Saturday that it had no intention of doing so, Reuters reports. "The RBI clarifies that no such proposal is under its consideration at this juncture," the bank said in a statement. The country's finance minister has been battling the ever-rising current account deficit (CAD) for some time now. In 2012 the central bank considered various measures including freeing up the reserves. "There have been some news stories in the media in the last couple of days about the Reserve Bank of India discussing/considering various options of converting idle gold, including that available with temple trusts, into bullion," the central bank told Reuters. "The Reserve Bank clarifies that no such proposal is under its consideration at this juncture." After oil, gold is the second largest contributor to India's CAD. Massive imports of both commodities have been eating away at the country's forex reserves and the value of the rupee, which hit an all-time low last week. Attempts at curbing imports through quotas and duties have not had much effect. There have been media reports that the RBI is considering various options of converting idle gold, including that available with temple trusts, into bullion. Bullion usually stands for gold in form of bars before coining. Demand for gold is the reason for rise in import of the precious metal. The rising gold import is one of the main reason for the Current Account Deficit (CAD), which widened to a record 4.8 percent of GDP in 2012-13 fiscal. The RBI and the government has already taken various steps to control the import of gold with a view to check CAD. The government recently raised customs duty on gold to 10 percent. The price of gold touched $1,420 an ounce this week, a three-and-a-half month high, as escalating tensions in the Middle East, volatile currency markets and renewed demand for jewelry in China and India pushed prices higher. Gold has rebounded 15 percent to $1,396 an ounce since sinking to $1,212, its lowest level in almost three years, on June 27. A gain of 20 percent or more would put the metal back in a bull market. Gold's resurgence follows a rough ride this year. Gold slumped 4.8 percent in the first three months of 2013 as the outlook for the economy improved while inflation remained subdued. For many years prior to that, large investors, like hedge funds, bought the metal as a way to protect their investments against rising prices and a slumping dollar. They feared that the Federal Reserve's stimulus program could cause prices to rise. But inflation remained subdued and that reduced the need to buy gold. Also, signs in January that the dollar was strengthening diminished the appeal of owning gold. Then in April, the bottom fell out. A proposal that Cyprus sell some of its gold reserves to support its banks rattled traders, prompting concern that Spain, Italy and other weak European economies might also sell and flood the market. Gold plunged by $140 an ounce, or nine percent, on April 15 as investors unloaded their holdings. That was the biggest one-day decline in more than 30 years. While the price of gold is still down 17 percent this year, the metal is on the rise. — SG/Agencies
