Only pure gold will be traded

More than 40 years after the ban was first introduced, the country is once again allowing trading in gold and silver futures.

"The public at large, especially at the village level, have more confidence in gold" [than in other forms of investment], the managing director of New Delhi brokers Geojit Inofin, C. J. George, told BBC World Business Report.

The demand for gold from India is likely to go up C. J. George Geojit Inofin

Consequently, about 13,000 tonnes of gold is held privately in India.

Futures will enable people to invest in gold without having the physical commodity in their home, Mr George said.

Mr George also believed the lifting of the ban could make it easier for gold investors to be sure the gold they buy is pure.

Only internationally reputed, hallmarked gold bars will be allowed for trading on The National Multi Commodity Exchange of India (NMCEI) - based in the western city of Ahmedabad.

The bourse, which was launched early this year, was India's first agricultural commodities stock exchange.

Rising prices

India is the world's largest consumer of the two metals, consuming 800 tonnes of gold annually, or about a third of the total supply mined in the world, according to NMCEI.

So the resumed trading is expected to increase the metal's influence in the international commodity markets.

"The demand for gold from India is likely to go up," Mr George said.

"This is part of the liberalisation process and the reform process that is happening in the financial sector and the commodities sector."

Futures trading allows investors to agree to buy or sell commodities at a specific time in the future - for example in 3 months - at today's prices.

In this way, they can protect themselves against the risk of a steep rise or fall in prices.

Protection

Futures trading in gold and silver was banned after a border conflict between India and China in 1962.