Turmoil in the financial markets has created a “flight to safety” mentality among investors, who are pouring cash into low-risk assets such as gold.

Financial vehicles called Exchange Traded Funds (ETFs), which allow individuals to buy a stake in a gold bar without holding the metal itself, have received unprecedented flows of new money.

ETF Securities, the specialist provider, has two gold funds listed in London and $180 million (£105 million) of new money flowed into them between Monday and Thursday last week. This was on top of $93 million the week before, taking the total to $4.88 billion.

Nicholas Brooks, head of research and investment strategy at ETF Securities, said: “The financial system is imploding and the real economy is starting to feel the impact, so investors are looking for somewhere safe to invest.”

The largest gold-backed ETF in the world is the New York-based SPDR Gold Trust, which has expanded its holdings by 26 per cent since Lehman Brothers, the investment bank, declared bankruptcy in mid-September. SPDR Gold now owns 765 tonnes, worth more than $22 billion, up about $6 billion in the past month.

ETFs operate by selling shares on stock exchanges, in the same way as a normal company. Each share in, for example, SPDR is the equivalent to owning one tenth of an ounce of gold; the metal is stored in a vault at HSBC in London.

Peter Fertig, an analyst at Dresdner Kleinwort, said: “Many investors view gold as the only lifeboat in the stormy sea.”

Investors are also buying physical gold to hoard in their own vaults as they take money out of stocks and bank accounts.

Guy Jolliffe, from GoldScrap.co.uk, said: “Over the last few weeks specifically we have had various inquiries from customers who wish to send in their scrap gold jewellery and exchange it for gold bullion bars.”

Business at ATS Bullion, which sells bullion from an office near the Savoy hotel in Central London, has more than doubled in the past couple of weeks. One of its customers recently sank the entire proceeds from the sale of his house into a set of £16,100 1kg bars, each little more than the size of a Twix.

The surge in demand for investment gold led to South Africa temporarily running out of krugerrands, a coin that sells for about £530, last week. The United States Mint also temporarily suspended sales of American Buffalo one-ounce bullion coins; it halted sales of American Eagle one-ounce coins in August.

“People started to get very interested after the Lehman Brothers situation,” Sandra Conway, the managing director of ATS Bullion, said. “We do have people thinking that the way things are going you might need a gold sovereign to buy a loaf of bread.”

The gold price closed at $889 at the London fix on Friday afternoon, up from $840 the week before. The price has been fluctuating for a number of weeks as the surge in investment demand has been offset by sales of scrap jewellery.

Hard-pressed families around the world have been trading in their gold, taking advantage of the high price.

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