March 1 (Bloomberg) -- Gold in New York fell for a third straight day after the decline in global equities deepened, forcing some investors to sell the precious metal to cover losses in stock markets.

Gold has declined 3.5 percent since a stock sell-off in Chinese shares on Feb. 27 prompted the biggest decline in U.S. equities in four years. Standard & Poor's 500 Index dropped as much as 1.8 percent today before paring losses.

``Traders have on eye on the stock market,'' said Ron Goodis, director of Equidex Brokerage Group Inc. in Closter, New Jersey. ``People who've been riding gold's rally are going to bail. They need to sell the most liquid asset to finance their stock holdings.''

Gold futures for April delivery dropped $7.40, or 1.1 percent, to $665.10 an ounce on the Comex division of the New York Mercantile Exchange. Prices dropped 2.5 percent in the previous two sessions and are up 12 percent in the past year.

Gold has outperformed other assets such as stocks and bonds over the past five years. Prices have more than doubled while the S&P 500 has gained 24 percent and the benchmark 10-year U.S. Treasury has returned 27 percent.

``This is a continuation of what happened on Tuesday,'' said Tom Hartmann, a commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. ``There are a lot of stock investors whose other play has been metals. When the stock market falls, people need to pull money out of something to protect their positions.''

Historical Volatility

Some analysts said gold may fall because the widening fluctuation in prices will increase the perceived risk of precious metals and discourage new investment.

The historical volatility, or the rate at which a price moves up and down, for gold futures was 26 percent in the past 10 days. Two weeks ago, the rate was 15 percent for the previous 10-day period. The S&P 500 had a historical volatility of 19 percent.

``It's a little too volatile to commit to anything,'' said Nick Ruggiero, a gold trader at Eagle Futures Inc. in New York. ``If people are hesitant about stocks, they're going to be even more hesitant about gold and the metals.''

Gold will eventually benefit from uncertainty in equity markets, analysts said.

``You have to protect your assets so most people are moving to the sidelines now,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. ``Overtime, gold will turn around and move a lot higher because of the disruption in these markets.''

Gold may fall as low as $660 before rebounding, said Daniel Vaught, a commodity analyst at A.G. Edwards Inc. in St. Louis.

``The volatility in equities is going to renew safe-haven buying in gold and precious metals,'' Vaught said. ``There'll be bottom-pickers.''

Silver for May delivery fell 58.5 cents or 4.1 percent, to $13.65 an ounce. Prices are up 41 percent in the past year.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

Last Updated: March 1, 2007 14:43 EST