Despite the prevailing high price level, central banks from emerging economies are willing to accumulate gold to diversify their currency reserves.

"Investors who had previously given gold the cold shoulder are now returning to the market on the news of India's gold purchase," Eugen Weinberg, a senior analyst with Commerzbank AG, wrote in a note.

Prices may climb as high as $1,300 an ounce should inflation concerns increase in the next year, Weinberg said. "At $1,100, gold is definitely not in a bubble yet," he said.

The Indian central bank's purchase from the IMF was made last month at an average price of $1,045 an ounce, and the $6.7 billion (Dh24.5bn) acquisition increased its holdings to about 557.7 tonnes.

The IMF agreed in September to sell 403.3 tonnes to shore up its finances and provide more low-interest loans. The IMF has sold 200 tonnes of gold to the Reserve Bank of India for $6.7bn, executing half of a long-planned bullion sale that has threatened to slow gold's ascent.

The deal, which surprised traders who expected China to be the most likely buyer, will relieve the gold market of some uncertainty over how and when the IMF would sell 403.3 tonnes of gold, about one-eighth of its total stock. The deal will increase India's gold holdings to the tenth largest among central banks.

It also fuelled speculation that other governments – including Beijing – may be ready to diversify their reserves even at near-record gold prices, helping soak up IMF supply that the fund may otherwise be forced to sell on the open market.

"Central banks in India and China will be happy to accumulate gold at these levels. I will not be surprised to see even some Southeast Asian banks buying gold," Aaron Smith, Asia head of the $1.65bn technical trading fund Superfund, said.

The Reserve Bank of India said the purchase was an official sector off-market transaction and was executed during October 19-30 at market-based prices.

An IMF official said the sale was concluded at an average price of about $1,045 an ounce and that the transaction would be paid in hard currency and not in IMF Special Drawing Rights.

Although the IMF's plan to sell a share of its gold holdings in order to increase low-cost lending to poor countries had been flagged for a year before it was approved, the speed, scale and identity of the buyer were a surprise.

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