Gold falls from record as global rout prompts calls

NEW YORK (Reuters) - Gold recoiled from a record high in heavy volume on Thursday, as mounting recession fears fed a global stock market maelstrom that forced investors to liquidate bullion profits to cover losses elsewhere.

As the global stock market sell-off accelerated and major U.S. stock indexes tumbled 4 percent, safe-haven buying of gold quickly gave way to liquidation as investors scrambled to meet margins calls.

In an abrupt midday reversal, gold slid as much as $40 from an all-time high. This surprised some traders who had expected gold to extend its record run on new government currency and bond market interventions and a likely renewal of monetary easing by the Federal Reserve to revive the U.S. economy.

Silver slumped over 7 percent too in one of the biggest risk asset sell-offs since early 2009, while U.S. Treasury prices and the dollar soared in tandem as holdings of last resort. Investors braced for a Friday U.S. payrolls report that threatened to extend a run of gloomy economic data.

"You see the markets re-price all terms of risks and the dollar is rallying. So, I don't see why gold would be a safe haven today," said Jeffrey Sherman, commodities portfolio manager at DoubleLine Capital, which oversees $13 billion in assets.

"Gold looks completely out of steam. There is really no benefit to owning gold right now because it's not that you are worrying about inflation yet. There could be some worries about government printing money but that's not imminent anymore."

Gold was down 0.6 percent at $1,651.40 an ounce by 3:33 PM EDT, having earlier hit a record $1,681.67. Gold mining stocks measured by the Arca Gold BUGS index .HUI slumped over 6 percent.

U.S. gold futures for August delivery settled down $7.30 at $1,659 an ounce. Trading was frantic, with volume near 320,000 lots, set to be one of the strongest this year.

The sudden fall from bullion's peak caused a surge in demand for options to protect bullish positions. Gold option volatility also spiked more than 12 percent to a 2011 high.

Silver plunged 7 percent to $38.76.

As investors fled stocks, the S&P 500 index slid into correction territory on mounting worry about the U.S. economy and Europe. Oil tumbled 5 percent and other commodities also slumped broadly. The dollar index surged 1.5 percent while the yen fell sharply after Japan intervened. .N .CRB

"When you get outside markets down significantly, some investors liquidate their winning positions in the gold and silver market longs to raise margins and support their losing trades," Phillip Streible, senior market strategist with futures broker MF Global.

Even as technical indicators showed the gold market was in overbought territory, most analysts said any pullback would be short-lived because there was enough safe-haven buying and economic fears to put a floor on prices.

"The only thing that would stop the momentum in gold at this point is an increase in margins. I bet that's coming sooner or later," said independent investor Dennis Gartman.

There was market chatter about an increase in margins for gold futures after bullion's 12 percent rally since July. The CME Group, which runs the U.S. futures market, has not made any announcement about a margin hike in gold or silver.

RALLY ON MONEY EASING VIEW FIZZLES

Early in the session, bullion hit its third record in four days on safe-haven demand after new U.S. claims for unemployment benefits were little changed last week. A string of lackluster U.S. data including disappointing manufacturing and private-sector jobs reports earlier this week also pointed to a halt in economic growth.

Bullion also hit all-time highs in euro, sterling and yen in early trading.

Gold initially benefited as the European Central Bank resumed buying government bonds, marking a fresh round of central bank money easing. The news failed to clam fears as Italian and Spanish bond yields climbed toward danger levels.

Investors are already jittery about a chaotic currency market after interventions by Japan and Switzerland, a possible downgrade to the U.S. AAA credit rating and a widening euro debt crisis. The dollar and U.S. Treasury debt appeared to be the only winners across a broadly lower global markets.

Investor buying have underpinned bullion prices given concerns Europe and the United States may tip back into recession.

Holdings of the largest gold-backed exchange-traded-fund SPDR Gold Trust and the No. 1 silver-backed ETF iShares Silver Trust both rose 0.4 percent on Wednesday from a day earlier.

Platinum group metals fell in tandem with industrial commodities. Platinum dropped 2.9 percent to $1,724.75 an ounce, and palladium fell 5.4 percent to $748.47.

3:33 PM EDT LAST/ NET PCT LOW HIGH CURRENT

SETTLE CHNG CHNG VOL US Gold DEC 1659.00 -7.30 -0.4 1642.20 1684.90 281,750 US Silver SEP 39.431 -2.327 -5.6 38.470 42.295 107,381 US Plat OCT 1729.40 -55.60 -3.1 1718.00 1795.60 15,188 US Pall SEP 752.95 -42.15 -5.3 742.50 799.00 10,296

Gold 1651.40 -9.30 -0.6 1640.50 1681.67 Silver 38.760 -2.920 -7.0 38.590 42.200 Platinum 1724.75 -51.75 -2.9 1720.25 1790.24 Palladium 748.47 -42.48 -5.4 746.02 795.50

TOTAL MARKET VOLUME 30-D ATM VOLATILITY

CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 318,353 200,477 178,679 20.91 1.40 US Silver 121,940 71,912 60,173 40.88 1.06 US Platinum 15,348 6,578 7,232 22 2.00 US Palladium 10,622 3,499 3,653

(Additional reporting by Melanie Burton in London; Editing by David Gregorio)