RBI has banned banks from giving loans for gold purchase.

Gold has provided shine to many an investor portfolio. But it has also tainted the country's current account deficit position. In fact after oil, gold imports form the largest part of the current account deficit. As a result, the government has been taking several steps to discourage the purchase of gold in the country. One was to raise the import duty on gold to 4% earlier this year. But that has not really affected the dynamics of gold buying in the country.

Now the Reserve Bank of India (RBI) has banned banks from giving loans for gold purchase. As a result, banks would be unable to lend funds for buying gold in physical form or in the form of ETFs. However, banks would still be able to lend to genuine jewelers and jewellery manufacturers. This move is expected to sieve out the speculators from entering the gold market and thus curb volatility in the prices of the metal. It must be remembered that India is one of the largest gold importing country in the world. As a result, its gold purchases have also contributed to the increase in global prices to some extent.