The Dhaka gold squeeze - Gateway House

Gold prices hit yet another high in Feb 2025, crossing Rs 85,000/10 grams, up nearly 30% over the past year. If not for the 9% cut in customs duty in July 2024, the price would have raced past Rs 95,000 per 10 grams.

Gold has been in the news for other reasons also. The Bank of England, which is the custodian for the gold reserves of several foreign governments, has over the last three months seen an outflow of gold[1]. The London-New York track has been the busiest, with traders shifting gold across the Atlantic to benefit from the price difference, with nearly 400 tons of gold having made that journey since December 2024. Waiting times for physical delivery surged from a few days to several weeks[2] leading to the general public questioning whether the Bank of England had physical possession of the gold that it claimed to have. On the other side of the Atlantic, President Donald Trump has spoken of auditing the U.S. gold reserves in Fort Knox[3] which after the New York Federal Reserve is the second-largest custodian of American gold.

Gold prices usually rise in times of uncertainty, and the past few years have seen their fair share – pandemics, conflicts and geopolitical upheaval – which have all increased the allure of gold. Gold offers protection against inflation, a persistent bugbear in most developing countries. Those governments prop up their currencies artificially to keep inflation down, till the situation becomes unsustainable and there is a catastrophic devaluation, and gold is a good insulator. For instance, the Turks historically hoard gold because their currency depreciates regularly. The Turkish Lira has lost over 80% of its value against the U.S. dollar in the past five years. Ditto with the Egyptians, who are traditional hoarders of gold. Egypt, which has a similar income level as India, and is a major importer of food and energy, devalued its currency by 60% at one go in March 2024.

Something similar seems to be building up in India’s neighborhood.

Gold has long been favored by Indians to preserve wealth across generations. According to World Gold Council estimates, Indian households hold an estimated 24,000 tons of gold – at the current market prices this stash is worth an astounding $2.3 trillion. Indians holds an eighth of all the gold that has ever been mined.

The difference in gold prices between India and Bangladesh indicates that the latter may be significantly over-valuing its currency, to keep imports cheap and inflation down. The price of per gram of 22 karat gold in Bangladesh is Taka 13,149 per gram. That’s Rs 9,426 per gram in Indian money – 14% dearer than the Rs 8,085 per gram price of 22 karat gold in India.

Normally, if the price of a commodity is higher somewhere, traders pile on to benefit from the arbitrage – as seen in the London-New York gold shift. However, the opposite is happening here. There have been multiple seizures of gold at the India-Bangladesh border by India’s Border Security Force (BSF) – in December 2024[4], and January[5] and February[6][7] 2025. Logically therefore, gold should be moving from India to Bangladesh, but all these seizures are of gold being brought in from Bangladesh to India – to pay for grain and other commodities being smuggled from India to Bangladesh, which the latter lacks.

This indicates that while in nominal terms, gold may be more expensive in Dhaka, in real terms, it is cheaper. Clearly, the Bangladeshi Taka is being artificially propped up by at least 15 per cent.

The current regime, which is presiding over a volatile situation, is unlikely to devalue its currency to its true value. A devaluation will push inflation to twice of the 10% that it is currently[8].

Amit Bhandari is Senior Fellow for Energy, Investment and Connectivity, Gateway House.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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References

[1] Susanna Siddell. “Bank of England Should Have Been Worried Years Ago: US Economist Issues Warning Over Withdrawal of Gold from Britain’s Vaults”. GBN, GB News, 22nd February 2025. https://www.gbnews.com/money/bank-of-england-gold-warning-donald-trump-trade-war

[2] Ryan Hogg. ”Traders are moving so much Gold from the Bank of England to the US to avoid Trump Tariffs that the wait time has reportedly Quadrupled.” Europe: Finance, Economics section, Fortune Magazine, 31st January, 2025. https://fortune.com/europe/2025/01/31/waiting-time-get-gold-out-bank-england-reportedly-octupled-trump-tariff-threats-spark-exodus-us/

[3] Kinsey Crowley, Anthony Robledo. ”Trump vows to make sure gold is at Fort Knox. Treasury Secretary says it’s accounted for.” Politics section, USA Today, 20th February, 2025. https://www.usatoday.com/story/news/politics/2025/02/20/fort-knox-gold-donald-trump-elon-musk/79314407007/

[4] ” Gold Worth Rs.1.74 Crore Seized at Indo-Bangladesh Border In Tripura.” India News, NDTV, 6th December 2024. https://www.ndtv.com/india-news/gold-worth-rs-1-74-crore-seized-at-indo-bangladesh-border-in-tripura-7183027

[5] Aritra Singha. “BSF Arrests Smuggler with Gold Worth Rs.36.73 Lakh On India-Bangladesh Border.” India section, The Free Press Journal. 8th January 2025. https://www.freepressjournal.in/india/bsf-arrests-smuggler-with-gold-worth-3673-lakh-on-india-bangladesh-border

[6] Anupam Mishra. ”BSF Arrests Man with Gold Worth Rs.1.48 Crore along India-Bangladesh Border.” News: India, India Today. 20th February 2025. https://www.indiatoday.in/india/story/border-security-force-man-gold-worth-rs-148-crore-india-bangladesh-border-west-bengal-nadia-2682723-2025-02-20

[7] Anupam Mishra. ”Border Forces foil Gold Smuggling Bid along Bangladesh Border, seize Rs.3 Crore.” News: India, India Today. 15th February 2025. https://www.indiatoday.in/india/story/bsf-gold-smuggling-india-bangladesh-border-rs-3-crore-seized-2680551-2025-02-15

[8] Bangladesh Bank. ”Current Inflation Entries.” Economic Statistics, Economic Data, Central Bank of Bangladesh, Government of Bangladesh. 27th February 2025 (accessed). https://www.bb.org.bd/en/index.php/econdata/inflation