Gold extended losses on Thursday to fall as much as $200 from Tuesday's record high, as investors cashed in scorching gains in the metal after the CME Group hiked trading margins for the precious metal for a second time this month.

Investment appetite for gold has cooled ahead of a widely awaited central bankers' meeting at Jackson Hole, Wyoming, as speculation grows over whether or not the Federal Reserve will signal a further round of U.S. monetary easing.

More quantitative easing -- or money printing -- for the Fed could significantly lift gold, but it could have further to correct if no additional action is signaled.

Spot gold was down 2.2 percent at $1,711.99 an ounce at 7:01 a.m. EDT, having earlier touched a low of $1,702.44.

Investors have cashed in on gold's latest rally after the yellow metal surged nearly 20 percent in early August to record highs at $1,911.46 an ounce.

In a sense the decline is just subtracting the frothy increase (from the market), said Mitsubishi analyst Matthew Turner. That increase has been going on since around $1,600 an ounce, so it is hard to see where the bottom lies.

But the metal's overall uptrend, which has seen it climb more than 20 percent this year, is still intact, analysts said.

To be convinced you'd seen the top of the market you would have to see more signs of the issues that had lifted gold being resolved, such as the euro zone crisis, and U.S. growth coming back, said Turner.

Spot prices fell 4.3 percent on Wednesday, their biggest one-day drop since December 2008, after U.S. durable goods data beat expectations. U.S. gold futures also posted their sharpest slide since 1980.

Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, declined by more than 27 tonnes on Wednesday, their biggest one-day outflow since January 25. They have dropped nearly 60 tonnes this week, worth around $3.25 billion at today's prices.

Gold's losses were exacerbated late on Wednesday after the CME Group, the world's largest commodities exchange, raised margins on gold futures by about 27 percent, the biggest hike in more than two and a half years and the second increase in a month.

Assets seen as cyclical or higher-risk than gold rose on Thursday as gold declined. European shares climbed after a raft of positive corporate results, oil prices firmed and the euro strengthened against the dollar.

U.S. gold futures for August delivery were down $42.30 an ounce at $1,715.00.

EXPECTATIONS SCALED BACK

All eyes are now on Jackson Hole. Fed chief Bernanke's speech on Friday is being closely watched for hints of a fresh round of quantitative easing, which some have speculated could be necessary to kick-start growth.

Bernanke is likely to use his speech to acknowledge disappointment over the pace of the recovery and explain how the Fed will tackle sluggish growth.

It is fair to say that gold should be one of the bigger beneficiaries of another round of quantitative easing; anticipation of such has been a driver of gold's strength recently given worries about financial stability and a deteriorating economic outlook, said UBS in a note.

That yesterday's U.S. durable good data release surprised on the upside raised a red flag, along with equities trading again in positive territory, and climbing Treasury yields.

As expectations of what Fed Chairman Bernanke can say at Jackson Hole tomorrow are scaled back, gold should be one of the assets that reacts most, it added. But there is also a positive aspect to this, in that gold appears to have already discounted disappointment at Jackson Hole.

Among other precious metals, silver was down 1.2 percent at $39.16 an ounce, spot platinum was down 0.9 percent at $1,785.49 an ounce, and spot palladium fell 0.3 percent to $741.47 an ounce.

Japanese investors have been steadily boosting their platinum investments over the last month, tempted by the precious metal's stability relative to gold as they look to diversify their commodity holdings with global markets in turmoil.

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