PRECIOUS-Gold up with equities, but some doubt bullish trend

* Gold rises after volatile trade

* High price volatility prompts some to question bull run

* Volatility based on GLD options drops from two-year high (Recasts, updates comment, market activity, adds NEW YORK to dateline, second byline)

By Frank Tang and Jan Harvey

NEW YORK/LONDON, Sept 13 (Reuters) - Gold rose nearly 1 percent on Tuesday, as higher equity markets and a rebound in the euro reversed some of the previous session's sharp drop driven by margin-call selling.

The recent lack of safe-haven bids combined with elevated price volatility prompted bullion investors to question the metal's outlook.

Global stocks and the euro recovered on hopes of political support for Greece from Europe's top powers. On Monday, gold briefly dipped below $1,800 an ounce as euro debt fears prompted investors to sell bullion to cover losses in equities.

Gold options' implied volatility -- a measure of how much traders expect prices to move, either up or down, in the future -- held near its highest in over two years. Some investors are turned off by bullion's wild price swings since late August.

"Gold's clearly not a safety play for the moment, and it has become more challenging for gold to test $2,000. It would require a continuation of global economic problems and investors reclassifying gold as the safety play again," said Phillip Streible, senior market strategist with MF Global.

Spot gold was up 0.8 percent at $1,826.90 an ounce by 12:22 p.m. EDT (1622 GMT), having earlier fallen as low as $1,798.75.

Bullion has dropped 5 percent from last Tuesday's record at $1,920.30.

U.S. gold futures for December delivery was up $17.20 at $1,830.50 an ounce.

Silver was up 1.4 percent at $40.76 an ounce.

Concerns over the ability of some euro zone economies -- chiefly Portugal, Italy, Ireland, Greece and Spain -- to manage their burgeoning debt helped drive gold prices to record highs above $1,920 an ounce earlier this month.

The metal has faced headwinds around that level, twice failing to sustain a rise above $1,900. Gold's correlation with the euro has turned negative since mid-July, after the common unit has risen in line with the precious metal in recent years because both are perceived as alternatives to the U.S. dollar.

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Gold correlation with dollar: http://r.reuters.com/ryx52s

Asset returns in 2011: http://r.reuters.com/suz52s

Inflation adjusted gold price: http://r.reuters.com/pun62s

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The euro fell against the yen, weighed down by a disappointing Italian debt auction that saw borrowing costs soar and conflicting reports about fresh euro zone support for debt-laden Greece. [FRX/]

"Gold's fortunes seem to be waning at the moment. A move downward through $1,802-$1,807 would likely set off a sizable sum of stop loss orders. Caution, and we think rather extreme caution, is advised," said independent investor Dennis Gartman.

GOLD OPTION VOLATILITY DROPS

The CBOE Gold ETF Volatility Index <.GVZ>, which is often referred to as the "Gold VIX" and is based on SPDR Gold Trust options, fell 10 percent on Tuesday after a five-session rally to two-year high in the previous session.

Economic uncertainties tends to drive investors to put on bullish bets in the gold option markets. However, more gold traders are also using puts to hedge against downside risks after the metal failed to extend gains beyond a record above $1,900 an ounce last week. [ID:nS1E78B1KW]

In platinum group metals, platinum was up 0.4 percent at $1,809 an ounce, while spot palladium was up 2.1 percent at $717.75 an ounce.

Prices at 12:22 p.m. EDT (1622 GMT)

LAST NET PCT YTD

CHG CHG CHG US gold 1830.50 17.20 0.9% 28.8% US silver 40.700 0.536 1.3% 31.6% US platinum 1814.70 5.30 0.3% 2.1% US palladium 716.85 6.60 0.9% -10.8% Gold 1826.90 13.65 0.8% 28.7% Silver 40.76 0.55 1.4% 32.1% Platinum 1809.00 7.95 0.4% 2.3% Palladium 717.75 14.97 2.1% -10.3% Gold Fix 1820.00 14.00 0.8% 29.1% Silver Fix 40.02 -79.00 -1.9% 30.7% Platinum Fix 1815.00 3.00 0.2% 4.9% Palladium Fix 721.00 6.00 0.8% -8.8% (Additional reporting by Jan Harvey in London; Editing by Bob Burgdorfer)