NEW YORK (MarketWatch) -- The price of gold can very well reach $1,100 an ounce this year or early 2009, the London-based consultancy group GFMS Ltd. said Wednesday in its latest survey of the gold market.

While gold, along with other metals and overall commodities have experienced a correction in prices in recent weeks, GFMS expects the ongoing credit crisis to continue fueling investment demand for the precious metal.

"We weren't at all surprised that the market saw a hefty correction in the last few weeks, as the speed of the earlier gains looked a little unsustainable," said Philip Klapwijk, GFMS' executive chairman in the report. "However, we don't think current hesitancy means it's game over for the rally."

After breaking out through a series of all-time highs early this year, gold peaked at over $1,030 an ounce in mid-March before sliding back below $900 recently. On Tuesday, gold for June delivery closed at $918 an ounce on the New York Mercantile Exchange. See full story.

"Many of the drivers behind this investor push after all - dollar weakness, skeletons in banks' closets - are still very much with us," Klapwijk said. "But quite where [gold will] top out is a difficult call - maybe $1,100 is achievable this year but $1,200 plus could be going a bit far".

Jewelry demand seen falling

GFMS, which provides data to the World Gold Council, said its outlook remained cautious because of the rapidly growing gap between mine production and jewelry demand, the metal's fundamental support.

In spite of a drop in production in South Africa, global production levels in 2008 should be on par with 2007, the group said.

But jewelry demand has been hit by the surge and volatility of gold prices, which leads GFMS to predict a drop in demand of over 200 tons this year.

In its 2007 survey, the group found that the interplay between investors and the jewelry sector had largely determined the course that prices took. During the first half of last year, western investment fell but gold remained supported mainly by jewelry demand, GFMS said.

But investment was the key driver for prices from September onwards, as the credit crisis flared up globally.

"Driven by growing risk aversion, a weakening U.S. dollar, a clearly problematic financial services sector and expectations of lower equity prices, investors have increasingly recognized gold's safe-haven attributes," Klapwijk said.

Looking ahead, GFMS said it expects the positive climate for gold investment to continue at least until late 2008 and quite possibly into the first half of 2009.

The consultancy group expects the credit-market crisis to persist in the medium term, fueling continued risk aversion and creating a bearish outlook for the U.S. dollar, the global economy and equity markets.

Expectations of rising inflation, boosted by a weak dollar and rising crude-oil prices, will also likely support the precious metal, it said.