* Liquidity need prompts liquidation in gold market
* Gold turns positive as stocks plunge in late trade
* South African gold output slips 23.2 percent in August
(Recasts, updates prices, market activity and comments to late
trade after the U.S. close; adds second byline, dateline,
previously LONDON)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Oct 9 (Reuters) - Gold ended lower on
Thursday as investors opted for cash as global stock markets
kept sliding a day after coordinated interest rate cuts failed
to stem fears of a global recession, dealers said.
But after gold futures settled, bullion turned sharply
higher in safe-haven buying after the Dow Jones Industrial
Average <> plunged 600 points on mounting credit fears.
During regular trading hours, investors had taken profits
on bullion's rally to a nine-day high in the previous session.
Spot gold <XAU=> was at $887.05 an ounce at 2:55 p.m. EDT
(1855 GMT), down 2.3 percent from $906.50, Wednesday's nominal
close. 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.
U.S. gold futures <GCZ8> for December delivery settled down
$20.00, or 2.2 percent, at $886.50 an ounce on the COMEX
division of the New York Mercantile Exchange. But the December
contract rose in less-liquid after-hours trade as the Standard
and Poor's 500 index lost more than 6 percent.
Investors pulling cash out of stock markets have been
parking it in safe-haven assets like bullion as the financial
crisis has unfolded. A reversal of that trend should lead to a
correction in gold prices, analysts said.
Stocks slid even after the Federal Reserve, European
Central Bank and other central banks cut interest rates by 50
basis points on Wednesday. South Korea, Hong Kong and Taiwan
cut rates early on Thursday.
George Gero, vice president of RBC Capital Markets Global
Futures, said relative ease in the lending market, reflected by
lower Libor rates, prompted investors to sell gold early.
But traders said financial market turmoil was driving the
gold market now, and these influences were taking a back seat.
"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
Firm fundamentals also support the gold market. South
African gold output fell 23.2 percent in August from a year
earlier, Statistics South Africa reported. Power problems have
plagued South Africa, the world's No. 2 gold producer, since
its electricity grid nearly collapsed in January.[]
Buying of physical gold, especially investment products such as coins and bars, also should support bullion.
"There is very big demand from private customers,
especially in Germany and Luxembourg... for coins and bars,"
said Kempinski. "There is a lot of safe-haven buying. Everyone
is looking for delivery of physical gold."
Gold exchange-traded funds, which issue securities backed
by physical gold, have seen strong demand. The world's largest
bullion-backed ETF, SPDR Gold Trust, said its holdings rose to
a record high on Wednesday.
Spot silver <XAG=> was at $11.78 an ounce, up from
Wednesday's nominal close of $11.70 an ounce.
Platinum climbed, mirroring a recovery in many industrial
metals. Platinum <XPT=> rose to $1,016.00 an ounce from its
Wednesday nominal close of $990.50, while palladium <XPD=>
edged up to $198.00 from $192.50 late Wednesday.
