(Repeats story after correcting snap)
* Prices set to spike above $2,000/oz before year-end
* Investment demand set to recover, jewellery buying to hold
* Central banks seen lifting 2011 purchases to 336 T
* Gold mine supply expected to reach record levels in 2011
By Jan Harvey
LONDON, Sept 15 Gold prices are likely to break through $2,000 an ounce by year-end to new record highs, metals consultancy GFMS said in a report on Thursday, as inflation pressures in Asia and debt concerns in the West lead to a recovery in investment demand.
While investment was soft in the early part of this year, jewellery purchasing held up remarkably strongly as prices climbed to records, the company said, while central banks added to holdings and scrap supply remained muted.
World investment in gold is forecast to jump by more than a quarter year-on-year to 1,069 tonnes in the second half, largely on the back of soaring bar demand, and could push the market significantly higher.
"Apparently low investment figures were very much a first-quarter story," said Neil Meader, research director at GFMS. "As soon as that Western disinvestment stops, you then have investment coming back at a time when the jewellery market is still strong and scrap is not doing a huge amount."
"Throw in a couple of hundred tonnes of official sector purchases, and you get some quite interesting price pressures going on," he said.
A forecast for a hefty 43.5 percent year-on-year fall in implied net investment -- chiefly reflecting activity in exchange-traded funds, on COMEX and in over-the-counter trading -- was a reflection of profit-taking early in the year, Meader said.
But the low interest rate environment, poor confidence in paper currencies and concerns over sovereign debt are all still strong factors underpinning interest in gold. In the full year, world investment is seen rising 1 percent to 1,693 tonnes.
Selling out of exchange-traded funds in the first quarter of the year, when the major gold funds recorded the largest quarterly outflow on record, has been partly reversed, suggesting appetite for the products has recovered.
Bullion bar buying, which has been consistently strong this year, rose 43 percent in the first half and is expected to stay strong in the remainder of the year, with GFMS forecasting a further 8 percent rise in the second half.
"We have seen periods where ETF demand wasn't great, and to an extent that was due to some people shifting out of ETFs into allocated metal accounts, because that is a lower-cost vehicle for holding gold," said Meader.
"That phenomenon happens when you have new entrants in the market. The ETFs are very visible and easily understandable, and that attracts new entrants, but once they are more familiar with gold ... and if their positions build to a certain size, they may be in a position to switch into allocated metal."
CHINA, INDIA SNAP UP JEWELLERY
Meader said strength in jewellery fabrication, which rose 7.5 percent to 1,037 tonnes in the first half, masked a more complex picture for the largest single segment of gold demand.
The jump was concentrated in Asia, said GFMS, which was recently bought by Thomson Reuters. Excluding China and India, fabrication in the rest of the world fell 4 percent.
Indian demand climbed 52 tonnes, while Chinese buying increased by 40 tonnes. However, the high grades of gold used suggested that these purchases were made for investment purposes, rather than adornment, the firm said.
"The buying that we are seeing there is in essence a form of investment," said Meader.
"The stuff that is being bought is high-carat, low-margin jewellery that is being bought for investment purposes. Some of that is being bought because people want to lock in their purchase in advance of expected price gains. Other people are buying and selling jewellery almost on a speculative basis."
In the full year, jewellery fabrication demand is expected to climb 1 percent to 2,032 tonnes.
There was also persistent weakness in the volume of scrap gold being returned to the market, despite a rise in prices to a record $1,920.30 an ounce.
Scrap supply fell more than 7 percent in the first half to 752 tonnes. Forecasting an 11 percent climb in the second half, GFMS said prices were likely to have to climb back above $1,900 an ounce before significant scrap selling resumes.
Lower jewellery demand and higher scrap sales are likely to be an early indicator of a broad price correction, GFMS said.
Central banks increased their purchases in the first half of 2011 to 216 tonnes from 72 tonnes a year before. In the second half, GFMS predicts the official sector will buy another 120 tonnes, up from 5 tonnes the previous year.
On the supply side of the market, the company said it was inevitable that mine supply would reach record levels in 2011, with output seen rising 4 percent to 1,469 tonnes in the second half of the year. (Reporting by Jan Harvey, editing by Jane Baird)