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London - Gold prices slipped more than 1% from record highs on Thursday as a move by CME Group to hike margins for trading COMEX gold futures prompted some investors to cash in gains after an early rally.
A firmer tone to stock markets, notwithstanding some choppiness as French banks came under renewed pressure, also pointed to firmer appetite for assets seen as higher risk, potentially deflecting some investment from gold.
Prices remain underpinned, however, by worries over the European banking sector and broader economic concerns. Spot gold was down 0.8% at $1 780.29 an ounce at 1104 GMT, off a low of $1 770.99.
The metal hit a record $1 813.79 an ounce in early Asian trading hours as concerns over the outlook for French banks with exposure to peripheral euro zone debt and market talk of a possible downgrade of France's AAA credit rating on Wednesday rattled investors.
But its sharp rally ran out of steam after the CME Group , the world's largest commodity exchange, said it was raising margins for trading Comex 100 Gold Futures by 22.2% to $5 500 per contract from $4 500, effective from the close of business on Thursday.
The CME, the world's largest commodity exchange, lifted maintenance margins on gold futures to $5 500 per contract from $4 500 a contract for speculators, effective from the close of business on Thursday.
The strength of the metal's run-up this week, rising 9% to its peak, has left it vulnerable to correction, traders said.
"The news came out when the market was around $1 815 and the news took the market lower," said Afshin Nabavi, head of trading at MKS Finance.
"There is still the uncertainty over a downgrade of France despite the rating agencies reaffirming (its) AAA rating, so it feels like gold could be in for another nervous day, with more possibility on the upside."
A series of CME margin rises on silver in May, after it hit a record near $50 an ounce, triggered heavy selling that pushed the metal down by a third of its value in just six sessions.
While the margin hike for gold is weighing on prices, its impact is unlikely to be as dramatic, analysts said
"More important as a driver of gold currently is the search for safety, driven by fears over global growth and the potential for sovereign debt downgrades in the US and Europe, as well as the likelihood of the Fed funds rate remaining unchanged until 2013," said UBS in a note.
"These are reasons entirely different, and significantly more substantive, than the search for a quick buck. which caused the last leg of silver's rally at the start of Q2."
On track to climb
Despite Thursday's correction, gold remains on track for its biggest one-week gain since September 2008, helped by hefty losses in stock markets. World stocks edged off this week's 11-month low on Thursday, helped by a recovery in US stock futures, while European stocks rose.
Gold's correlation with the S&P 500 was at its most negative since the fourth quarter of 2008 in early August.
On the currency markets, the dollar index was flat. The euro edged off lows but was seen as vulnerable to worries about the euro zone sovereign debt crisis spreading to the region's banking sector. These fears are also underpinning gold.
"Bullion is still looking dangerously overbought, but these are extraordinary circumstances, with risk aversion continuing to spiral out of proportion," said VTB Capital in a note.
"Once again, euro-denominated gold outperformed other bullion crosses on heightened euro zone sovereign debt fears."
Gold hit a record 1 283.38 euros an ounce in earlier trade, while US gold futures for August delivery were down $2.40 an ounce at $1 781.90, having touched an all-time high at $1 817.60.
Among other precious metals, spot silver was down 0.6% at $39.04 an ounce. Spot platinum was up 0.8% at $1 776.75 an ounce, while spot palladium was up 1.3% at $733.47 an ounce.
The gold:platinum ratio held near its highest since the third quarter of 2008, with gold maintaining its historically unusual premium over the white metal.
