Johannesburg — RAND Refinery is taking steps to double its capacity to produce Krugerrands as demand for gold coins has surged globally amid the upheavals in financial markets.

Producers of gold coins around the world have reported unprecedented demand in the past month or two as individuals have sought protection for their savings.

But physical demand from small investors has not been sufficient to push the gold price back to its peak of $1030/oz in March. Gold was trading at $850-$860/oz by midday yesterday, compared with more than $900/oz last week.

James Moore, of The Bullion Desk in London, said gold was likely to remain volatile this week as it was buffeted by long liquidations and short selling to generate cash on one hand, and fresh investment and jewellery demand on the other.

GFMS executive chairman Philip Klapwijk said in Kyoto last week that demand for jewellery was being hard hit by higher prices and volatility.

To avoid breaching psychologically critical price points at retail stores, jewellers were reducing the amount of gold in jewellery, substituting it with precious stones and other metals and changing designs.

But new investors are entering the market for gold coins.

Bloomberg reported last week that there were queues of buyers outside ATS Bullion, the biggest gold coin and bar retailer in London.

"I'm uncertain about the banks and I don't want too much of my cash with them," one investor told Bloomberg.

The BBC reported last week that sales of Vienna Philharmonic gold coins, manufactured by the Austrian mint, had risen over 230% in the past year. Last month alone the mint sold 100000oz of gold coins, which normally represents about three to four months of sales.

Also last month, the US mint said it would temporarily suspend sales of one-ounce 24-carat Buffalo coins because inventories had run out. In mid-August the US mint had to suspend sales of the one-ounce, 22-carat Eagle coin for the same reason.

Bloomberg reported a month ago that Rand Refinery had run out of stock of the 22-carat Krugerrand in late August after a single large order.

Chris Horsley, head of fabrication at the refinery, confirmed yesterday this had happened as a result of an order out of Switzerland. The refinery's capacity was about 10000 coins a week and it was making arrangements to increase output to 15000-20000 coins a week, at least until it could fulfil all advance orders, he said.

Rand Refinery produces a blank coin, which has to be minted by the South African Mint, because the Krugerrand is legal tender in SA.

The mint was also considering increasing minting capacity, he said.

Horsley said this was a period of exceptional demand, and it was tied to the liquidity crisis, as people were seeking safe-haven investments.

Alan Demby, chairman of the South African Gold Coin Exchange, said the exchange's turnover had trebled in the past month. The privately owned business works like the JSE, as it offers a forum for buyers and sellers of coins.

"As much as people are looking for a safe haven at the moment, there are also people looking to realise cash," he said.

Since 1999, when gold hit a low of $251,80/oz, people had been buying coins for a number of reasons, including fears about the millennium, 9/11 and the ensuing effect on stock markets, Demby said.

He said the exchange recommended clients spread their money between two-thirds bullion coins and one-third collectibles or numismatics, because the price of collectables fluctuated less than that of coins. In general, the exchange thought investors should hold 10%-15% of their total wealth in coins.

He said if the exchange had any investment mantra, it would be "don't put all your eggs in one basket".

He would not recommend investors put all their assets in gold coins because it was also a volatile market.