Gold prices fell by nearly 3 percent inEurope on Wednesday after a sharp rally in stock markets prompted nervous investors to cash in gains after the precious metal’s rally to record highs in the previous session.

Gold was set for its most volatile day in two weeks, with price swings of nearly $80, just shy of late August’s $104 difference between session peaks and troughs.

By 1445 GMT, spot gold was down 2.8 percent at $1,812.89 an ounce. It rallied to a record $1,920.30 a day ago, but dropped after the Swiss National Bank intervened to weaken the franc, shaking up financial markets.

U.S. blue chip stocks rallied by nearly 1 percent in early Wall Street trade, echoing the strength in global equities, after Germany’s highest court paved the way for Berlin to continue to participate in any bailouts forGreece or other euro zone members.

“The focus was on lack of growth and perhaps the Swiss decision and some stabilisation of (equity) markets has perhaps made people a bit less depressed about growth and that buying has come out of the market,” said Mitsubishi analyst Matthew Turner

“Gold’s strength in the last few weeks was, in theory, on the lack of growth, not on higher inflation and this addresses that ‘lack of growth’ theory, and if gold investors were fearing that, then this is bad for them.”

Reflecting the investor retreat from gold over the past few days, even with a rise in the price to record highs, was a fifth consecutive decline in exchange-traded fund holdings of gold — a key gauge of investment demand. Holdings are at 67.38 million ounces, their lowest in six weeks.

Support from current levels is likely to continue to come from the euro zone debt crisis. The bloc’s most indebted nations are struggling to convince investors of their commitment to reduce debt, as Germany, the euro zone’s biggest economy, faces opposition to further aid.

In a closely watched decision, Germany’s Constitutional Court on Wednesday rejected a series of lawsuits aimed at blocking Germany’s participation in bailout packages for Greece and other euro zone countries.

It said however that parliament must have a bigger say in future rescues, which could further slow down Europe’s response to the debt crisis.

The news helped assets seen as higher risk to rise, briefly lifting the euro against the dollar but pressuring German Bund futures. European shares rose sharply, bouncing from a two-year closing low. – Source: Reuters