Gold pares gains as investors take profits

London: Gold pared most of its gains on Monday, as investors took profits from a rally to record highs above $1,030 and a sharp drop in oil prices lowered the metal's appeal as an inflation-hedge.

Spot gold was quoted at $1,006.80/$1,007.00 an ounce at 1420 GMT after falling to a low of $998.90. Earlier, it hit a record high of $1,030.80, against its close of $996.90/$997.70 in New York late on Friday.

Other key precious metals fell, with platinum declining more than four per cent to a one-week low and palladium slipping over six per cent in a broad-based selloff, analysts said.

"It looks as though there is just profit-taking after a great run. There could be selling to meet margin calls as equities tank," said David Thurtell, analyst at BNP Paribas.

European shares fell 4.1 per cent to their day's lows in afternoon trade, led lower by banks as investors worried about contagion from a fire sale of Bear Stearns.

"Oil clearly led the way down," said David Holmes, director of metals sales at Dresdner Kleinwort Investment Bank. "The market is incredibly jittery because of the financial situation," he added.

Some analysts said gold was likely to get support from the financial market concerns and a weaker dollar. Investors expect the Fed could slash overnight rates by up to 125 basis points by the end of its meeting today. An interest rate cut tends to weaken the dollar, which in turn helps bullion prices.

Gold hit $850 an ounce in 1980. After adjusting for inflation, the 1980 high is equivalent to $2,119.30 an ounce at 2007 prices. The average for the whole of 1980 has been calculated at $1,532.14, according to precious metals consultancy GFMS.

In other metals, silver set a new 27-year high at $21.24 before slipping as low as $19.92. It was last quoted at $20.28/$20.33 an ounce, against $20.63/$20.68 in New York.

Platinum fell over four per cent to $1,975 an ounce before rising to $1,990/$2,000. Palladium declined to $487/482 an ounce from $509/514.