A worker displays gold bars at the National Indian Bullion Refinery (NIBR)'s gold and silver refinery in Mumbai on November 6. Spot gold prices surged to $1230 an ounce.

Gold prices hit an all-time high as demand surged to the highest level since the collapse of Lehman Brothers in 2008 amid volatile financial markets in Europe.

Spot gold in London surged to above $1,230 a troy ounce, surpassing the previous record set in December last year.

Gold prices in euro terms also hit a fresh all-time high of €969 an ounce in late trading in London on Tuesday, up almost 26 per cent since the beginning of the year.

Traders and coin dealers said buying was exceptionally strong from German and Swiss investors. In Frankfurt, gold sellers said that demand late last week was three to four times normal levels. The spike appears to reflect concerns in Germany about the potential inflationary impact of the European Central Bank's decision to buy up eurozone government bonds in the wake of the Greek debt crisis.

Michael Kramer, president of Manfra, Tordella & Brookes, a large New York-based coin dealership, said: "The demand has been huge overseas. Most of it is ending up in Germany." Edel Tully, precious metals strategist at UBS in London, added: "Coin demand is so intense that supply is struggling to match".

UBS, one of the largest bullion banks, said its gold sales desks in Geneva and Zurich had experienced the greatest demand for coins and small bars since 2008 last Thursday, when markets were shaken by contagion fears in the eurozone.The Austrian Mint has sold 108,000 ounces of Vienna Philharmonic coins in the past two weeks, more than the 89,100 ounces it sold during the first three months of the year.

Kerry Tattersall, marketing director at the Austrian Mint, which sells the popular Vienna Philharmonic bullion coin, said the mint was producing "as fast as we can".

"It's quite a spectacular increase in demand." "We've put on a third production shift so we're producing around the clock," said Kerry Tattersall, the mint's marketing director.

Jonathan Spall, a director of commodities at Barclays Capital in London, said gold was likely to hit a "fresh all-time high before the end of the week". Outside the eurozone, dealers said that demand was also strong in North America.

Holdings in physically backed gold exchange traded funds are at record highs after some ETFs last week experienced their biggest inflows in over a year.

Global investors have been increasingly turning to gold since 2008. Gold traditionally performs well during times of financial distress or in times of US dollar weakness.

Global investors, led by the US, last year bought a record 228.5 tonnes of gold in the form of bullion coins, up from 77.4 tonnes in 2000, according to GFMS, the London-based precious metals consultancy.