(Adds comments from presentation. In U.S. dollars)

By Cameron French

TORONTO, Jan 15 (Reuters) - Gold prices this year should surge above 2008's record levels, rising as high as $1,080 an ounce as government fiscal stimulus efforts weaken the U.S. dollar and fuel inflation, a closely watched report said on Thursday.

Gold could average $915 an ounce in the first half of 2009, up from last year's average of $871.96, GFMS, a London-based consultancy, said in an update of its Gold Survey 2008 report. In comparison, gold traded at $815 an ounce on Thursday.

For the year, gold should trade in a range of $750 an ounce to $1,080 an ounce, which would put it above the record intraday high of $1,030.80 hit on March 17, 2008.

The metal fell sharply after hitting its peak last year, as the global economic slowdown and financial crisis dampened jewelry demand and prompted many investors to liquidate their gold holdings to cover other losses.

Such liquidations could continue, but demand may also rebound because of a weaker U.S. dollar and more buying by investors worried about the inflationary risks of the billions of dollars being pumped into the financial system by governments, particularly the United States.

"The economic outlook is pretty positive for gold investment," GFMS Chairman Philip Klapwijk said at a presentation in Toronto following the release of the report.

Massive debt taken on by the U.S. government could force the Federal Reserve to turn to "quantitative easing" -- essentially printing money to cover the debt -- which will further boost money supply, and prompt investors to turn to gold as a hedge against inflation, the firm said.

GFMS expects implied net investment to rise 89.4 percent year-over-year to 388 tonnes in the first half of 2009.

Gold should also stand out as a better alternative to investments such as stocks, which GFMS expects will remain under pressure in 2009, and bonds, which have soared as a safe-haven bid, but could fall hard as U.S. deficit spending results in a glut of debt hitting the market.

"We expect there will be fairly high levels of financial uncertainty," Klapwijk said, characterizing the high bond prices as a bubble that could easily burst.

LOWER JEWELRY DEMAND, FLAT SUPPLY

The investment appeal of the metal should compensate for a retreat in jewelry demand, which dropped 10.9 percent to 2,139 tonnes last year, its lowest since 1989, due to high gold prices early in 2008, and to weakening economic growth later in the year.

Economic worries should continue to shrink demand in 2009, GFMS said, while demand will also be eroded by lower producer dehedging, which is expected to fall 82.3 percent to 45 tonnes in early 2009 after a 22.6 percent drop last year.

"Dehedging is in its sunset year," Klapwijk said.

The supply side of the equation, meanwhile, should have little impact on the price, staying nearly flat in the first half of 2009 after a 4.1 percent drop last year, GFMS said.

Mine output dropped 3.6 percent to 2,385 tonnes last year, hurt by a sharp drop in Indonesia and more modest declines in Australia and South Africa.

The opening of Kinross Gold's (K.TO: Quote, Profile, Research) Kupol mine boosted Russian production, while China solidified its status as the top gold producing nation with a 3 percent increase.

South Africa, once the world's dominant producer, slipped to No. 3 behind China and the United States.

Many miners have canceled or postponed projects due to funding constraints, and this should continue, GFMS said.

Overall gold supply is seen dropping 0.6 percent in the first half of 2009 to 1,888 tonnes, as a 2.6 percent rise in mine production is offset by a 23.4 percent drop in central bank sales. (Reporting by Cameron French; Editing by Frank McGurty)