* Gold extends retreat from record as risk appetite rises
* Scrap supply dwindling could further boost gold rally
* Largest gold ETF sees largest outflow since late January
(Recasts, updates quotes, adds double byline, adds double
dateline, previous LONDON)
By Frank Tang and Jan Harvey
NEW YORK/LONDON, (Reuters) - Gold dropped 2 percent
Friday, extending the previous session's drop from record
highs as a rise in appetite for market risk prompted
profit-taking from bullion's sharp safe-haven rally this week.
Bullion fell as stock markets in Europe rallied after a ban
on short selling financial shares tempted investors back. Wall
Street equities rose over 1 percent as mildly upbeat retail
sales data offset a weak reading on consumer sentiment.
Despite Friday's decline, gold is poised to rise more than
4 percent this week, its biggest weekly gain since early
November, while the S&P 500 is set to fall for a third straight
week on double-dip recession fears. The metal has gained as
much as 13 percent in the last two weeks.
"Near term, a correction makes sense in relation to other
safe havens," said Macquarie analyst Hayden Atkins.
Spot gold fetched $1,730.19 an ounce at 11:24 a.m. EDT,
hitting a session low of $1,722.94. It has risen 22 percent so
far this year on a potent mix of concerns over U.S. and euro
zone government debt levels and economic growth.
US gold futures for December delivery were down $18.50 at
$1,733 an ounce.
The Dow Jones industrials were up 1.5 percent around midday
after U.S. government data showed retail sales posted its
biggest gains in three months, while consumer sentiment
worsened sharply in August.
The rebound in stock markets since Wednesday's slide has
diverted money from gold, which at one point was up as much as
$150 this week, hitting a record $1,813.79 early Thursday.
"While we believe that macro-economic uncertainty will
sustain the secular bull trend in gold, the velocity of the
recent move higher also opens the door to a steep if temporary
downward correction," Katherine Spector, commodities analyst at
CIBC wrote in a note.
Spector added that CME Group's margins hike earlier this
week could also put a short-term brake on gold's rally.
The CBOE Gold ETF Volatility Index, which is often referred
to as the "Gold VIX" and is based on SPDR Gold Trust options,
is on track for its biggest one-day drop since November
following a spike earlier this week amid a global market
(Editing by Alden Bentley)
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