COLOMBO - Sri Lanka's central bank on Saturday said it has been buying gold to diversify its reserves amid volatile currency markets, days after India announced it had purchased 200 tonnes of the precious metal.

Central Bank assistant governor Nandalal Weerasinghe declined to confirm analysts' estimates that the tropical island nation had purchased around five tonnes of gold.

"We have been observing that prices of gold have been going up so we have been strategically buying gold over the past several months as part of a reserve management process of diversifying our portfolio," he told AFP.

The price of gold hit a record high above 1,100 dollars an ounce in London trading on Friday following a report that Sri Lanka had joined India in purchasing the precious metal.

Weerasinghe did not disclose from which sources the bank was buying the gold or at what prices. He gave no breakdown of how much of the country's more than five-billion-dollars in foreign reserves were held in gold.

A senior source close to the central bank said the gold purchases were part of moves to smooth periods of dollar volatility and the amount bought was in the neighbourhood of 5.3 tonnes as of September.

The source said the bank intended to "continue to buy it (gold) as a hedge against volatility in currency markets".

The International Monetary Fund kicked off its sale of more than 400 tonnes of gold last Monday by announcing it had sold almost half to India, the world's biggest gold consumer, at near-record prices.