In an analysis published Wednesday, Citigroup notes that physical gold investment is heading toward record levels this year.

The broad-based increase includes coins, bar hoarding and identified retail. The increase is particularly remarkable given that it is occurring during a period of USD strength and when investments in other commodities have collapsed, Citigroup metals analysts Alan Heap and Alec Tonks said.

The analysts also noted the increase in gold ETFs have been even more dramatic with ETF holds rapidly approaching yearly physical demand and half of the world's annual mine supply. Based on our estimates, if ETF inflows continue at current rates, investments will be 1900t in 2011e with the implied price of US$1300/oz.

While COMEX futures open positions are increasing, CIBC said, We believe the different dynamics between ETFs and futures reflects investors desire to get as near to physical gold as possible. The desire for physical gold is also reflected in the sharp increase in demand for coins and bars.

Emphacizing that it is important to consider the technical outlook for gold, Citigroup predicted that gold will test the $935 mark in the next month and the success and failure of that move should determine whether another attempt at $1,000 proceeds.

In the current environment of economic meltdown and systemic threats to financial markets safe haven demand will continue and gold prices will remain elevated, potentially moving much higher, Citigroup forecast.

However, the analysts cautioned bullish gold is a very crowded trade and any sign of stability and a return of market confidence will precipitate a sharp reversal in gold prices, indeed a period of weakness is probably already underway.

Nevertheless, the analysts concluded the weakness is likely to be short-term and gold market strength will be a continuing force until there are signs of economic and financial stability, which we expect in 2H10.

Finally, Citigroup also forecast that silver investment remains buoyant, especially from silver ETFs and physical demand. The analysts suggested that silver mine supply growth will likely be curbed, especially by zinc production cuts.