Before starting with the issue of Indian Bullion Market, we first should understand the meaning of the word "Bullion" in economic term. Bullion refers to a precious metal, mainly ' gold ' that can be cast into ' ingots ' or minted into ' coins '. The defining quality of bullion is that it is valued by its mass and purity rather than by its face value as in the case of money. In brief, the amount of bullion owned by a nation is exactly the intrinsic valuation of the amount of gold reserves that a country has. It is used as an indicator of the wealth possessed by a country. Pointless to say that the market is under the strict supervision of the Central Government.
Until 1990, the Gold Control Act banned its citizens from possessing gold bars. The investment in smuggled bars was also restricted and was done before readily converting them into jewelry by the families that were financially sound when requirements arose at times of wedding or other social occasions.
However the scenario changed in the period post 90s when investment in small bars both imported and locally made that had reproduced from local refineries had increased substantially. During the mid 90s, Gold started to be used as a method of camouflaging wealth when the local rupee price had experienced a steady rise. Such an augmentation in investment in gold was continuous in 1998 when over 40 tonnes of gold from bonds that were originally issued by RBI were restored back to the public.
Although in cities, gold is having to race with investment in stock market, industries, and a wide range of durable consumer goods, the rural people till date prefer to invest in 22 carat jewelery.
In order to tap this hoarding of gold privately, the Government declared a new initiative in its budget for the year 99-2000. It permitted the commercial banks to take deposits in terms of gold bars, coins or jewelery against the payment of interest.
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