* European stocks rise as rate cuts calm investors
* South African gold output slips 23.2 pct in August
* Gold, silver ETF holdings firm
(Recasts, updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, Oct 9 (Reuters) - Gold fell more than 2 percent in
Europe on Thursday as investors took profits after a rise of
almost $20 an ounce on Wednesday, with firmer equities
attracting cash back into the stock markets.
Spot gold <XAU=> was quoted at $888.70/891.70 at 0851 GMT,
down from $906.50 in late New York trade on Wednesday. Earlier
it touched a session low of $881.15.
"We are seeing some profit-taking," said Deutsche Bank
trader Michael Blumenroth. "We had a lack of follow-through
buying after we hit $920 yesterday. That seems to be a tough
level of resistance."
An uptick in equities is pressuring gold. European stocks
climbed after fresh government and central bank action to combat
the financial crisis. []
A group of major central banks including the Federal Reserve
and European Central Bank opted to 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
favour 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.
Crude prices, an important external driver of gold, which is
often bought as a hedge against oil-led inflation, are also
softer, undermining support for bullion. Investors are worried
about the effect of the credit crisis on demand. []
Standard Bank analyst Manqoba Madinane said vulnerability in
the oil price could pressure gold, especially when coupled with
equity index futures pricing strong gains in the U.S. markets.
"This, coupled with oil prices weakness, could decrease
systemic risk indicators thanks to the central bank cuts," he
said. "Precious metal investment sentiment could be cautious
today."
The dollar slipped a touch against the euro, but rose
against the yen. []
STRONG FUNDAMENTALS
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. []
South Africa is the world's second largest gold producer
after China.
Strong demand for physical gold from both institutional and
smaller investors is still likely to support bullion.
"People are buying all the physical gold available," said
Blumenroth. "This will hold up the market."
Buying of gold exchange-traded funds -- which issue
securities backed by physical gold -- has been particularly
strong.
The largest gold-backed ETF, New York's SPDR Gold Trust
<GLD>, says its holdings rose to a record 763.9 tonnes on
Wednesday. They are up nearly 25 percent since Lehman Brothers
filed for bankruptcy protection on September 15. []
The world's biggest silver-backed ETF, the iShares Silver
Trust <SLV.A>, also recorded an inflow on Monday, the last day
for which data has been released. Its holdings now stand at
6,877.15 tonnes.
Spot silver <XAG=> was trading at $11.58/11.65 an ounce
against $11.70 an ounce in late New York trade on Wednesday.
Among other precious metals, platinum <XPT=> fell to
$994.50/1,018.50 an ounce from $990.50, while palladium <XPD=>
slid to $195/205 from $192.50.
(Reporting by Jan Harvey; editing by Christopher Johnson)
