Gold falls 3.5 pct below $790 on profit taking

NEW YORK/LONDON (Reuters) - Gold prices tumbled 3.5 percent to a two-week low on Thursday in choppy trade, moving well below the $800 mark, giving up all of Wednesday's gains, as a bounce in the dollar and lower crude oil prices triggered heavy profit taking.

Easing oil prices dented bullion's role as a hedge against oil-led inflation while analysts also cited risk aversion in other asset classes -- prompting some trimming of investments in commodities.

Spot gold XAU=> traded as low as $783.05. It was last quoted in New York at $785.80/786.60 per troy ounce by 2:15 p.m. EST (1915 GMT) from $814.20/815.00, its previous finish on Wednesday. The market had hit an intraday high above $817 in Asian overnight trade.

The dollar gained against the euro but fell against the yen on Thursday as fears about the global credit crunch's impact and falling equity markets led investors to pare back on profitable but extended trades.

Neal Greenberg, trader at RBC Proprietary Trading in Red Bank, New Jersey, said that the dollar bounce prompted speculators to close out their long positions given a recent run-up in gold prices.

Greenberg said that the technical picture was still very bullish, especially over the long term. "The fundamentals have not changed at all for the dollar to resume its decline," he said.

Falling energy prices prompted bullion investors to lock in recent gains. U.S. crude futures CLc1> closed down 66 cents at $93.43 a barrel.

Earlier on Thursday, a government report showed that core U.S. consumer inflation in October was in line with forecasts. Gold futures fell further after the report as the dollar rose.

U.S. consumer prices rose a brisk 0.3 percent in October, driven by the sharpest rise in energy costs in five months, while jobless claims were higher than anticipated, government reports showed.

RISK FACTOR

Worries about fallout from the credit crunch continued to blow through foreign exchange and equity markets, having a knock on effect on gold, analysts said.

"Risk aversion is where gold ought to be strutting its stuff but that doesn't always work," SGCIB economist Stephen Briggs said.

Gold is traditionally seen as a safe-haven asset in times of financial stress but can get bundled in with commodities as an asset class to be sold when investors are feeling risk-averse.

Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois, cited risk aversion and the unwinding of yen carry trade for gold's decline.

"Due to the continuing credit problems, we are seeing the carry trade begin to unwind even more, but there is still whole lot left," Kaplan said.

Bullion rallied to $845.40 on Nov 7, its highest level since January 1980 when it hit a record high of $850.

The sharp decline in gold this week prompted a drop in holdings in gold exchange-traded funds. Bullion used to back StreetTRACKS Gold Shares, the world's biggest gold ETF, which represents more than 80 percent of the total value of all such funds, dropped to 588.74 tons as of Wednesday, from 599.50 tons on Monday. XAUEXT-NYS-TT

In other bullion markets, the key gold futures contract for October 2008 delivery 0#JAU:> on the Tokyo Commodity Exchange ended 22 yen per gram higher at 2,934 yen.

Barrick Gold was upbeat on the outlook for prices earlier on Thursday, saying that prices could move quickly to $900 or $1,000 an ounce.

Global gold demand in the third quarter rose 19 percent year-on-year to 947.2 tons on the back of robust inflows into bullion investment funds and improved jewellery consumption, industry-sponsored World Gold Council (WGC) said.

In other precious metals, platinum XPT=> mimicked gold's fall and was last quoted at $1,428/1,432 an ounce from $1,440/1,444 in late New York on Wednesday, with dealers citing some physical selling.

Silver XAG=> also tracked bullion back to $14.45/14.50 an ounce versus $15.02/15.07 late in New York on Wednesday.

Palladium XPD=> firmed slightly to $370/373 an ounce from its previous finish of $369/374.

(Additional reporting by Chris Kelly in New York, Lewa Pardomuan in Singapore)