As gold prices near $2,000 an ounce, some bulls say it's time to take money off the table after the safe-haven rally extended too far, too fast in recent weeks.

Gold investors at several firms said gold prices could correct sharply, citing overvaluation. While that does not mean prominent bulls are now bears, they recommended investors take profit on gold holdings after the precious metal traded briefly above $1,900 on Tuesday for the first time.

Spot gold rebounded more than 1 percent to above $1,853 an ounce on Wednesday after sliding more than 3 percent in the previous session, its biggest daily fall in a year and a half.

Investors in droves have sought a refuge in bullion from a stock market meltdown, fears about sovereign debts in Europe and the United States and worries about a recession.

Gold gained nearly 9 percent in the six sessions before Tuesday's fall and is up by more than $400 since July.

Independent investor Dennis Gartman, who has long been bullish on gold priced in non-U.S. currencies, said he was reducing his long positions on gold in euros and sterling by a third on Tuesday and another third on Wednesday.

Perhaps things have become a bit too frothy, and reduced rather than increased exposure seems reasonable and wise, Gartman said.

Gartman said gold's rally was not sustainable after SPDR Gold Trust's total assets surpassed that of the SPDR S&P 500 ETF , making GLD the largest exchange-traded fund in the world for the first time.

A resurgence in investment demand has fueled gold's rally in the past decade, particularly during periods of global economic slowdown, growing from 4 percent of total demand for gold in 2000 to over 39 percent in 2010, according to Citigroup.

However, we caution that this very aspect that provided support for gold over this time may result in its downfall going forward, the bank said in a note.

Even a slowdown, let alone a decline, in net investment flows can have a materially negative impact on the gold price from current levels.

Wednesday's bounce showed gold's appeal is far from fading, however, as buyers picked up the precious metal after its sharp decline on Tuesday.

It's premature to call it a correction. But there is quite a bit of downside risk if gold breaks below $1,800 on a sustained basis. It may go lower to $1,700 or so, said Ong Yi Ling, an analyst at Phillip Futures.

The current environment of low interest rates and a weak dollar remain supportive of gold prices, Ong said, adding that the potential for further quantitative easing by the Federal Reserve also increases gold's appeal in the longer term.

BUY THE RUMOR, SELL THE NEWS?

UBS metals strategist Edel Tully said the Swiss bank had certainly noticed an increase in clients looking to book profits, although she said this did not yet constitute a trend.

In a note on Tuesday, Tully cautioned that the risk of more margin hikes from CME Group was rising after the U.S. commodity exchange hiked margins by 22 percent in August and the Shanghai Gold Exchange lifted margins twice in a month.

Fund managers said the metal was bid up on expectations of further U.S. monetary easing and that bullion could sell off if Federal Reserve Chairman Ben Bernanke does not announce a new bond-buying stimulus program at an annual Fed conference in Jackson Hole, Wyoming on Friday.

There is some potential degree of 'buy the rumor, sell the news' on any future Fed policy that may come out at Jackson Hole. Investors might want to have that on the back of their minds as well, said Michael Cuggino, portfolio manager of the $15 billion Permanent Portfolio Funds.

Gold being as volatile as it is, it can go down in $100 to $200 and not really blink an eye, Cuggino said.

Longer-term gold holders say significantly cutting gold positions ahead of the Jackson Hole meeting could backfire.

Technically gold is very over-extended. If you are a short-term momentum player with a very short-term time horizon, yes, there is money to be made on the short side of the equation, says Ashok Shah, chief investment officer at London & Capital.

But until the Jackson Hole meeting is over, it is too premature to take any action at all. Gold could correct much more heavily if no U.S. easing is announced, he said, potentially offering investors the chance to buy into what would still be a healthy market.

You could easily drop $200, $300 -- that is not going to disturb the (long-term bull market), he said.

Cuggino said that investors should stay put and not add new gold positions at current prices, even though the metal is still a safe haven and an integral part of an investment portfolio in longer term.

Mark Luschini, chief investment strategist at Janney Montgomery Scott, a broker-dealer with $54 billion in assets, said that on charts, gold is vulnerable for a sharp pullback as it is trading at $400 above its 200-day moving average.

From a purely technical standpoint, I think it'd be wise to take some chips off the table, Luschini said.

(Additional reporting by Jan Harvey in London; N Sethuraman in Bangalore and Manolo Serapio Jr. in Singapore; Editing by Alden Bentley and Sugita Katyal)

Ben Bernanke Gold