Gold pares gains on profit-taking after record

By Anna Ringstrom and Atul Prakash

LONDON (Reuters) - 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 10:20 a.m. EDT 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 4 percent to a 1-week low and palladium slipping over 6 percent in a broad-based sell off, 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 percent to their day's lows in afternoon trade, led lower by banks as investors worried about contagion from a fire sale of Bear Stearns (BSC.N: Quote).

JPMorgan Chase (JPM.N: Quote) said late on Sunday it would buy Bear Stearns for just $2 a share -- more than 90 percent below its price at Friday's close.

The deal underlined the risks banks are facing as the U.S. mortgage crisis deepens and the rock-bottom price raised questions over valuations across the industry.

"Oil clearly led the way down," said David Holmes, director of metals sales at Dresdner Kleinwort Investment Bank.