The gyro compass settles in the N/S direction by sensing Earth’s spinning motion. Same gyro compass when placed on a ship also senses the ship’s motion. And therefore, the axis of gyro compass settles in a direction which is perpendicular to the resultant of the Earth’s surface speed and the ship’s velocity. The error caused by the speed and latitude experienced by the gyro compass varies with the latitude and speed of rotation of the earth. This is because the earth's rotational speed reduces as you go up in the higher latitudes. At you near the poles, the gyro attains its direction perpendicular to the motion of the earth and therefore, in higher latitudes the gyro compass readings become erratic.