The 2009 Gold Survey from GFMS Ltd says that it is only a question of time before gold investment demand is again strong enough to overcome the not inconsiderable obstacles presented by the weakened jewellery market and record levels of scrap supply. Both of these have been driven by high and volatile gold prices compounded by the negative impact of the global economic downturn on consumer spending. The easing of the immediate crisis in the financial system takes some of the momentum out of safe haven gold buying but this will be superseded by increasing worries over inflationary pressures as a result of governments' and central banks' fiscal and monetary policies.Fiscal deficits are soaring and likely to remain bloated for a substantial time in all the major economies. This is especially so in the US with the prospect of a $1.8 trillion deficit this fiscal year followed by a cumulative deficit of $9.3 trillion from 2010 - 2019. The probability that these will be financed in large part by quantitative easing is already troubling many investors. Coupled with short term interest rates that are close to zero and little likelihood of any increase in the foreseeable future given the economic environment, then GFMS sees a strong case for renewed gold investment. The rally-to-date has seen a comparatively small amount of money entering the gold market when set against the regular flows into the mainstream asset classes and the group estimates that net inflows in 2008 were probably no more than $26 billion.GFMS' exhaustive analysis of the market flows produces a supply-demand balance that shows a 10% contraction in jewellery demand in 2008 to the lowest level since 1989. Gold demand overall fell by just 1.0% in 2008 as the surge in investment demand took up most of the slack generated by the falls in jewellery, fabrication and producer de-hedging. Total supply of mine production, official sector sales and old gold scrap came to 3,880 tonnes, while jewellery, industrial fabrication, bar hoarding and net producer de-hedging came to 3,592 tonnes.This leaves a net excess of 288 tonnes, but investment demand substantially outstripped this notional surplus. This year's survey identifies strong physical investment buying last year (other than coins and investment bars) in North America and, particularly, Europe. This amounted to 197 tonnes while there were net ETF inflows in 2008 were a record 321 tonnes, giving a total identified investment flow of 519 tonnes.This suggests that 231 tonnes were teased out of other private hands or inventory adjustments and GFMS identifies a primary source of this material as the forced liquidations from institutional players as they raised liquidity during the financial turmoil of September and October. This gave rise to net disinvestment during the third quarter of the year while there was net investment in the first and fourth quarters.The 10% fall in worldwide jewellery fabrication was driven by a 22% slump in the first half that overwhelmed an 8% rise in the third quarter and near stability in the fourth quarter.If jewellery fabricated from scrap is stripped out of the equation then the falls were even more dire, with a first half loss of 35%, although the second half eked out a small gain of 2%. The bulk of the fall was probably price-driven, with India's 91 tonnes (15%) drop accounting for a third of the gross global fall. Net of scrap, the drop in Indian jewellery demand in the first half was roughly 60% year-on-year, while the second half net demand rose by a similar amount. Absolute prices and price volatility were the predominant cause of the early falls, while the recovery can be attributed to the expectation of future price increases. Demand in the Middle East fell by 10% or 54 tonnes (although expectations of price increases did generate an increase in demand in Egypt, out of kilter with the rest of the region), driven largely by Turkey. Turkish jewellery demand, net of scrap, imploded to almost zero in the fourth quarter of the year as a result of the local economic conditions and the rise in local prices. Italy sustained a 19% or almost 40 tonnes drop, largely due also to increases in price and economic conditions as European consumption fell by more than 10% and North American demand fell by almost 30%.These three countries were the first, third and fourth largest jewellery fabricators in 2008, with gross tonnages of 578 tonnes, 237 tonnes and 180 tonnes respectively. Net fabrication levels were 409 tonnes, 100 tonnes and 102 tonnes. The second largest was China, which sustained growth of almost 5% to a total of 342 tonnes gross and 259 tonnes net last year, thus absorbing 12% of the world's jewellery fabrication, against India's 20%. In net terms Indian demand amounted to 28% of the market and China took up 18% of total.Interestingly, if Indian and Chinese gross jewellery fabrication levels are taken together then in 1999 they amounted to 916 tonnes, while in 2008 they were 920 tonnes, virtually unchanged, The difference, of course, is that Indian fabrication was just over three times as much as China's ten years ago, while last year it was less than twice as much. Indian consumers have adjusted to higher prices and GFMS notes that when taken over a longer period of time India's performance has been all the more remarkable. Since the start of the bull market in 2002, the average gold price has risen by roughly 140%, while demand for jewellery has remained effectively unchanged, which is a ringing endorsement of gold's brand value in India. Local expenditure rose by over 10% in 2008 although the pattern of demand was extremely varied. Demand in 2009 so far has been very weak with imports falling to very low levels while for the first time there has been sustained exports of scrap to the rest of the world.While gold may retain its brand value in India, GFMS' sobering conclusion to this particular section of the Survey is that with the rupee price expected to remain firm and economic conditions only worsening, jewellery demand this year seems likely to fall.