Investment demand for gold surpassed jewellery fabrication in 2009 for the first time since 1980 to over $60-billion in value terms, helping to push the gold price to an all time high of over $1 200/oz in December.

But the latest GFMS gold survey, which was published on Wednesday, cautions that, while further gains were possible for investment and prices in 2010, the rally might take a while to materialise.

The publication, entitled ‘Gold Survey 2010', also warned that the rally's end could well be in sight, owing to weak net jewellery demand. That "end-game", though, "could still take a year or more to play out".

For the immediate fututre, therefore, GFMS expects gold to trade between $1 050/oz and $1 150/oz, before any possible medium-term rally and ahead of any longer-term correction.

"Looking ahead, further price gains were thought likely as the investment case was still perceived as strong, with, for example, all the major currencies now being questioned by investors, in large measure due to high and rising levels of government indebtedness and longer-term inflation threats still a growing issue for some," GFMS chairperson Philip Klapwijk said in London.

However, GFMS warned that "it's difficult to see how we can avoid a hefty drop in prices if we want to boost jewellery and trim scrap to bring the overall market back into equilibrium".

The consultancy noted that the jewellery market collapsed in 2009, with consumption falling to a 21-year low, or almost half the volumes achieved at their peak in 1997, while scrap supply surged to almost 40% of total supply.

Meanwhile, GFMS estimated that mine production rose to its second highest lever ever and that further growth was likely in 2010. Global gold mine production could expand about by two per cent in 2010, after rising seven per cent in 2009, Klapwijk was reported by Bloomberg News as saying.

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