GOLD was one of the best investments at the start of the 1980s, but one of the worst by the end of the decade. Many gold buffs are predicting gold may shine again.Today's gold price of about $367 an ounce is less than half what it was at its peak a decade ago when it briefly topped $800 an ounce. A Toronto gold analyst says the reason for the long decline is not so much a drop in demand as a huge increase in supply. "Mine production increased throughout the decade of the 1980s ... a direct result of the sharp price increases which took place in the 1970s," writes Murray Pollitt of Pollitt, Bertrand, a brokerage and research firm in Toronto. The discovery of new gold fields and the opening of new mines have changed the picture of the top gold producers in the world. The United States has moved up sharply to displace the Soviet Union as the world's No. 2 gold producer, after South Africa. Canada, on the other hand, has dropped from third place to fifth. One statistic has gold enthusiasts wondering if the metal could be poised for another jump. In 1990, gold output rose 3 percent to 1,734 metric tons, but demand rose by 4 percent to 2,380 metric tons. There could be a further reduction in supply this year. "Mine production shouldn't increase by more than 1 percent this year," said Peter Cavelti, president of Cavelti Capital Management Ltd. in Toronto. Demand for jewelry is pushing up the price of gold, said members of the World Gold Council, which met in Toronto in June. The council, representing 82 gold producers from 14 counties, predicted the price of gold could rise as high as $410 an ounce by year-end. The council said more gold was now going into jewelry than into the vaults of central banks. And council figures show more gold was made into jewelry last year than was produced by the world's gold mines: 1,885 metric tons made into jewelry, while new gold production was only 1,720 metric tons. (Total production is slightly higher because some gold is produced from recycling other materials such as discarded computer circuit boards.) And it said jewelry demand was up in the newly rich Asian countries such as South Korea, Thailand, and Singapore. An increase in working women - in those countries and elsewhere - with disposable income meant more gold jewelry was being produced. And while gold is thought of as an ancient way to store wealth, it is also heavily used in modern industries such as microelectronics. At the same time as demand is increasing, however, many central banks have been increasing supply by selling large amounts of gold reserves to prop up currencies or economies. Analyst Pollitt says the central banks of two large gold-producing countries - the Soviet Union and Canada - have flooded the market with gold for domestic political reasons. The Soviets need hard currency; Canada wants to keep the value of the Canadian dollar high so it can maintain a high interest rate policy and crush inflation. Without the selling of the Bank of Canada, the price of gold would be $30 to $40 higher than it is today, Pollitt estimates. Those high interest rates, in Canada and other Western countries, have also been a factor in gold's weakness. "The dreary performance of the gold price and the reality of [high] real interest rates have mitigated against investment in gold and have in fact led to disinvestment," Pollitt says. But some gold-watchers say the Soviet Union will continue to sell into the market, though it won't be able to do so in large quantities. While some optimistic analysts are predicting gold could rise to as high as $500 an ounce this year, others say it isn't going to budge. "The price is not going to react the way the gold buffs predict," says David James of the brokerage firm Richardson Greenshields in Winnipeg. "Our position is that gold prices have a cap of about $390." Mr. James says at that level - or below - gold producers will "hedge" their production in future markets to protect their profit and keep prices down. "For the next year or so, the gold producers seem destined to remain their own worst enemies."