The strategy was adopted as a part of the new gold policy that the central bank recently endorsed in the wake of last year´s mismanagement of gold trade that fuelled a deficit in balance of payment (BoP) -- inflows and outflows of foreign currency -- to Rs 23 billion.[break]
As per the plan, central bank will first buy 1,000 kg 24 carat (99.99 percent pure) gold using money generated from the recent auctioning of the gold to domestic traders. This will be done in order to restock our reserve, which has depleted as a result of auction, said a senior NRB official, refusing to be named.
“However, unlike the past, we will not bring it back to our treasury, but rather will invest it in the international market, so that we can earn good returns,” he told Republica.
Currently, the central bank is auctioning 100 kg of gold. It has so far auctioned out a total of over 400 kg of gold at a price some Rs 1,000 higher than the international rate.
While that has helped ease gold supplies in the market, sources said it has also enabled the central bank to make prudent use of gold in its reserve.
Prior to the auction, NRB had over six tons of gold in its reserve. While five tons of gold was in Nepal, another 1.2 tons is deposited in Luxemburg against the interest return of two percent per annum. The interest is received in gold.
“The new procurement will help us attain uniformity in the grade of gold we have in reserve,” said the official. Following this, the central bank will segregate its reserve into monetary gold and 24 carat pure gold for possible market intervention.In the second phase, the central bank has set a target to add three to four tons of yellow metal in the monetary gold reserve every year. That will be done once the country attains BoP surplus though, said the source.
The new approach has been adopted mainly because the rate of return in gold in recent years has remained much higher than currency. “Currently, the rate of return in currency stands just at 0.5 percent, whereas the return in gold hovers well around five percent,” said the source.
Likewise, the central bank will separately build an inventory of 24 carat pure gold in such a way that it can instantly inject a ton of yellow metal in the market whenever distortion in seen.
“This reserve will facilitate the government to tighten imports whenever needed without impacting supplies,” said the source.
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