Gold hits record on new deal

London - The price of gold hit a record high above $1 100 an ounce in trading here on Friday following a report that Sri Lanka had joined India in purchasing the precious metal in favour of the US currency.

"The Central Bank of Sri Lanka has announced that it is buying gold to diversify its reserves," industry body the World Gold Council (WGC) said in a statement issued before gold struck a record high of $1 101.42.

It later pulled back to stand at $1 092.65 an ounce in late London trading.

Gold had struck a series of highs already this week after the IMF said it had carried out a massive sale of the precious metal to India.

"Over the past year central banks, which have been net sellers of gold are now a new and increasingly important source of demand," WGC chief executive Aram Shishmanian said in the council's statement.

"This latest announcement demonstrates that many central banks are reassessing their reserve asset management policies."

Gold had reached a record high of $1 087.80 on Tuesday as the IMF said it had sold 200 tonnes of gold to India's central bank over a two-week period last month for $6.7bn to bolster its finances.

Gold and other commodity prices have surged in recent months amid a move away from the dollar, which has been slumping. The move accelerated last month on a report that Gulf states may stop using the greenback for oil trading.

The metal is also winning support from fears over a possible spike in inflation, as gold is widely regarded by investors as a safe store of value.

The sale to India was nearly half the 403.3 tonnes of gold that the IMF has targeted for sale over the coming years.

The Washington-based IMF, which currently holds 3 217 tonnes of gold, is the third-largest official holder of the precious metal after the United States and Germany.

India is the world's biggest consumer of gold, importing between 700 and 800 tonnes of the metal every year or 20 percent of global demand.

A senior IMF official said that the IMF was "lucky" in selling the 200 tonnes to India for roughly $1 045 an ounce, compared with $850 an ounce in April 2008.

Gold's price, which has risen more than 20 percent this year, has a bright future thanks to improving demand caused by the financial crisis, industry experts said this week.

"Although it's difficult to predict in the short term, the overall picture is very healthy," Mark Lynam, an executive for AngloGold Ashanti - the world's third largest gold producer - told the London Bullion Market Association annual conference in Edinburgh.

Plush London department store Harrods last month surprised the retail industry by starting to sell gold bars, with prices fluctuating according to the current market price.

- AFP