New Delhi/Mumbai: The bullion traders and investors are not alone in reaping rich benefits from the glittering gold prices and the strategy of keeping a substantial holding of the yellow metal seems to be working well for the government too.

A sharp rally of over 20 per cent in gold prices so far this month has led to a surge of about USD 5 billion (over Rs 22,000 crore) in the value of gold held by RBI, which acts as a custodian of the yellow metal for the government of India.

The Central Bank keeps the yellow metal in the country's international reserves portfolio, where it had gold worth Rs 1,11,940 crore (USD 25.35 billion) at the end of last month.

The gold prices in domestic market have appreciated by 20.4 per cent since the beginning of this month to hit a record high of Rs 28,230 per 10 grams. The prices have also appreciated sharply by over 16 per cent in the international market from USD 1,616 per ounce to USD 1,880 currently.

Taking into account a price rise of 20 per cent, the value of gold held by RBI has appreciated by over Rs 22,000 crore or about USD 5 billion dollar so far in August.

The experts are anticipating further rise and believe that the gold prices might even touch Rs 30,000 level well before Diwali as investors are increasingly shifting funds to gold amid a free fall in equity markets.

Gold has traditionally been a preferred high-value purchase for Indians, but mostly for jewellery purposes and as a means of preserving the family wealth. However, the trend is also picking up for gold as a pure investment play.

RBI has also been increasing its exposure to gold in its international reserve portfolio in the past few years. RBI's gold holding had seen a significant increase of about USD 7 billion after it purchased 200 metric tonnes of gold from IMF on November 3, 2009.

Before this purchase, gold accounted for only about 3 per cent of RBI's total international reserves, but it has now increased to nearly 8 per cent.

The Central Bank is currently estimated to hold a total of 557.75 tonnes of gold.

As per RBI data, its gold reserves have grown by Rs 22,376 crore (USD 6 billion) over the past one year, while it has gone up by Rs 11,254 crore (USD 2.9 billion) so far in the current calendar year 2011.

RBI figures among 10 largest central banks across the world in terms of gold holding in foreign reserves portfolio.

Gold import to cross 1,000-tonne mark

Notwithstanding the skyrocketing prices, gold imports are likely to cross the 1,000-tonne mark this year on robust investment demand, according to analysts.

Since the US sovereign debt downgrade and the new threats emanating from Eurozone economies, the yellow metal has been on fire, rallying a whopping 14 percent in this month alone as investors shunned stocks and flocked to gold as a safe haven. The last time gold rose over 14 percent in a month was in 1999.

In the domestic market, gold scaled a new high of over Rs 28,150 per 10 gm in futures market, while in global markets it struck a record USD 1,877 an ounce last Friday. In the
domestic market, on a single day, gold rose as much as Rs 1,310--the highest ever single day gain, they said.

"With rising prices, investment demand is likely to grow, especially in the gold ETFs (exchange traded funds) and coins, in expectation of better returns," said brokerage firm Maya Iron Ores vice-chairman Praveen Kumar.

The country's total gold ETFs investment has reached 15 tonne which is expected to double in a year, Kumar said. However, the jewellery demand is likely to decline due to rise in recycled gold in the market, he said.

India, the largest consumer of the yellow metal, had imported a hefty 958 tonne in 2010, according to the World Gold Council (WGC) data. During the first six months of this year, the import has already crossed 553 tonne, WGC said.

"The jewellery demand may decline as people will try and sell to take advantage of high prices. This will give rise to recycled jewellery which will make jewellers reduce their stocks," Kumar added.

Echoing Kumar, Geojit Comtrade senior analyst Anand James said import is likely to top the 1,000-tonne mark as investment demand is strong.

"Investment demand is likely to remain firm with the price rise," James said, adding, however, on the physical side also demand will remain robust as people will buy expecting a further rise in prices.

Meanwhile, the market is expecting the gold rush to gain further momentum and prices may even scale Rs 30,000 before Diwali as the global economic concerns get confounded by the day.

(JPN/Agencies)