Gold falls 2 percent as investors take profits

By Jan Harvey

LONDON (Reuters) - Gold slipped on Thursday as investors cashed in gains that took the metal to a nine-day high in the previous session, with a recovery in equity markets attracting investment back to stocks.

Platinum climbed, however, mirroring a recovery in many industrial metals, as a steadier outlook for the financial sector relieved downward pressure on the metal.

Spot gold was quoted at $887.60/890.10 at 9:29 a.m. EDT, down from $906.50 in late New York trade on Wednesday. Earlier it touched a session low of $877.65.

"There are still a lot of speculative positions in the market and some banks are taking profit to make up losses on other markets," Commerzbank senior trader Michael Kempinski said.

An uptick in equities is pressuring gold. European stocks were higher at midday, breaking a three-session losing streak, after fresh government and central bank action to combat the financial crisis.

U.S. stock index futures also rose as stronger-than-expected financial results from IBM (IBM.N) cheered the market.

A group of major central banks including the Federal Reserve and European Central Bank cut interest rates by 50 basis points on Wednesday, with South Korea, Hong Kong and Taiwan making cuts of their own early on Thursday.

Investors have been pulling cash out of stocks and shares in favor of so-called safer assets like bullion in recent weeks as the financial crisis has unfolded. A reversal of that trend is likely to lead to a correction in gold prices, analysts say.

The main external drivers of gold -- the dollar and crude oil -- were largely steady. Oil prices stabilized just below $90 a barrel after several days of losses.

The dollar slipped a touch against the euro, but rose against the yen.

With financial market turmoil driving the gold market at present, these influences are taking a back seat, traders said.

"Gold is trading pretty independently at the moment, which it hasn't done for a long time," said Deutsche Bank trader Michael Blumenroth.

FUNDAMENTALS SUPPORT

Aside from its value as a financial instrument, gold is also supported by firm fundamentals.

South African gold output fell 23.2 percent year-on-year in August, Statistics South Africa said in a report. The republic has been plagued by power problems since the near-collapse of its electricity grid in January.