Explained: Why the Reserve Bank of India is preferring gold over U.S. Treasuries in 2025

The Reserve Bank of India (RBI) is increasing its gold reserves as part of a diversification strategy. Generally, gold acts as a safeguard against fluctuations in the dollar, geopolitical tensions, and inflation, particularly during periods of heightened uncertainty.

With soaring U.S. fiscal deficits and waning confidence in the U.S. dollar worldwide, central banks are reducing their exposure to U.S. Treasuries and T-bills, which is a negative stance towards U.S. debt markets, while increasing gold holdings under the justification of stabilising their reserves.

Regarding numbers, the RBI increased its gold reserves by four tonnes over the first seven months of this year, compared to the 40 tonnes it purchased during the same period in 2024. RBI’s gold reserves stood at 879.98 tonnes as of June 2025, up from 840.76 tonnes as of June 2024, indicating that the central bank added 39.22 tonnes in this one year.

Simultaneously, several reports indicate that RBI’s holdings of US Treasuries have decreased from $241 billion in June 2024 to $227 billion in June 2025, which comprises a fall of $14 billion. This reduction in treasury holdings highlights a broader trend among global central banks to reduce their U.S. Treasury investments, thereby decreasing their reliance on the U.S. dollar, the reports state.

Pankaj Singh, Investment Manager at smallcase, Founder & Principal Researcher, SmartWealth.ai, says, “It’s no secret—it’s less about India and more about mismanagement in U.S fiscal math and its geopolitics. Fiscal chaos in Washington, as in 2000, the U.S. posted a $240 billion surplus. By 2024, that flipped to a staggering $1.9 trillion deficit—deteriorating by approximately $0.1 trillion per year, which is alarming.”

“Massive global debt of about $324 trillion, heightened uncertainty due to the raging trade war, and escalating geopolitical tensions became a concern for the RBI to buy gold,” said Praveen Singh, Head of Commodities and currencies at Mirae Asset ShareKhan. “The US fiscal mismanagement is not a passing phase but has become an insurmountable problem,” added Singh.

Analysts said that the world expected the U.S. to keep inflation below 1.5%. Instead, for most of the past decade, inflation has remained high. By 2025, inflation is in the 2.7–2.9% range, and interest rates are in the 4.5–4.6% range. The result is that the dollar’s status as the world’s trusted reserve currency is weakening.

T-Bill sell-off accelerated by geopolitics: trust in Treasuries took a direct hit in 2022 when the U.S. froze $300 billion of Russia’s sovereign assets. That move rattled capitals worldwide. Such a geopolitically motivated move has driven the shift from the U.S. dollar to gold across the globe.

Dr. Renisha Chainani, Head, Research at Augmont, says, “For the RBI, less exposure to U.S. T-bills is healthy risk management; it minimises sanctions-related risk and bolsters long-term financial resilience for India.”

Why gold? High U.S. inflation has been silently eroding the value of the federal reserves of governments worldwide. Central banks are fighting back—by shifting into gold, the only asset immune to fiscal and monetary missteps in Washington.

The U.S. geopolitical posture has further accelerated movement into gold, which is a physical asset and less vulnerable to sudden U.S. policy shifts.

“The dollar’s share of central bank reserves has already slid from 71% in 1999 to 58% in 2024 (IMF). Meanwhile, gold’s share of international reserves rose by 3% points to 24% in Q1 2025—the highest in three decades. Gold has already overtaken the Euro as the second-largest reserve asset,” said Singh of smallcase.

RBI’s gold build-up is not an outlier. It’s the smart play in a world where U.S. fiscal indiscipline and weaponised finance are undermining the very foundation of the dollar.