Mining and metals analyst John Hill said the mix of macro and supply/demand factors, along with the same forces that have pushed gold higher for the last five years, give him good reason to remain bullish on gold. He sees prices climbing through 2009 and 2010, but a significant lift may not come until the fall when fabrication constrains supplies.

The analyst told clients:

Longer term, we would not be surprised to see gold double from current levels as the global policy prescriptions for the credit crunch remain powerfully and uniformly re-flationary.

Citigroup’s gold price forecasts are $906, $950 and $1000 for 2008 through 2010. Gold prices averaged $924 per ounce in the first quarter, a 18% quarter-over-quarter increase, and climbed above $1000 on March 17.

Recent figures from the World Gold Council showed that investment surged 163% to 284 tonnes in the first quarter of 2008, but the amount of gold jewelry fell 21% to 445 tonnes on an annual basis. This pattern is consistent with the fourth quarter of 2007 and echoes 2006, Mr. Hill noted.

But while jewelry demand in India and elsewhere in Asia has proven to be sensitive to price changes, deregulation and rising wealth in China and Russia led those nations to buck the global trend with demand increases of 7% and 9%, respectively. China is now the world’s top jewelry market, he added.

Mine supply was flat in the first quarter as new capacity did not offset declines from mature regions, and Citigroup does not expect lower levels of gold de-hedging will create a surplus.