Extreme strain in the global economy has given way to something less hair-raising. So does the last investor in safe-haven gold, switch out the lights?

After a storming start to 2012, bullion prices have lost some of their lustre in recent weeks in line with a reassessment of global economic health.

Jumbo-sized liquidity taps are off in Europe, while the jury is out on a further round of U.S. quantitative easing.

U.S. data shows a slightly improved trajectory, with employment numbers and consumer credit growth highlighted in a key year for President Barack Obama. Treasury yields reflected that, breaking out of the doldrums and raising potential for tigher policy down the road.

Given that backdrop it is no surprise that gold has retraced since touching a record $1,920.30 an ounce in September 2011.

Gold is currently trading at around $1,660 an ounce.

Gold is now facing all of these risk reduction measures, so I'd expect the market to be temporarily subdued, said Ashok Shah, Investment Director at London and Capital Fund.

RISKY RELATIONS

But gold's changing relationship with risk might just be key to it ditching its open only in case of emergency label, as economies take a breather from panic caused by Europe's debt crisis.

Gold has baffled market watchers, particularly in the last six months, by refusing to behave as a traditional safe-haven and taking its cue from either the euro or stock markets.

The correlation between gold and the Standard & Poor's 500 <.SPX>, one of the broadest measures of U.S. equity market health, has spent most of the past few months in positive territory, meaning gold is more likely to move with U.S. blue chips than something less tangible like, say, investor fear.

Since the late 1960's, gold has on average traded inversely to the S&P roughly 60 percent of the time.

But this correlation has eroded to the point where between 2001 and 2011, the days on which gold was positively correlated to the S&P outnumbered those on which it was negatively correlated for the first time in history.

On a rolling one-month basis, in the 10 years between 2001 and 2011, gold traded together with the S&P just over 50 percent of the time, compared with 49 percent in the preceding decade and 46 percent of the time in the decade before that.

If nearly 40 years of history are anything to go by, in the coming 10 years, this positive correlation should strengthen even further.

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For chart on the S+P 500 correlation with gold: http://link.reuters.com/wuz37s

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NEW REALITY

Near-term, any asset can be vulnerable to corrections as the market readjusts to a new reality, or even the perception of a new reality, and gold is no exception.

Catherine Raw, a co-manager of BlackRock's Gold & General Fund, said reassessment of QE from the Fed has been instrumental in pulling gold down, but ultimately, longer-term factors that fed the quadrupling in the price since 2000 are still core.

It really comes down to two things. One has been the interest-rate environment, Raw said, referring to the rate of inflation outpacing benchmark interest rates in large parts of the developed and emerging world, eliminating the opportunity cost of holding non-interest bearing gold.

The second is diversification, she said. For a lot of investors, particularly in the West we are going from growing assets to trying to protect them.

It's about having a lower risk appetite than you saw in the 1990s for example, and particularly among central banks, that is true, she said.

CENBANK SHOPPERS

Central banks, which own more gold than any other investors, have turned into net buyers in the last two years - to the tune of over 400 tonnes last year - as economies with large current account surpluses and foreign exchange reserves reallocate some of that cash.

This shift, together with the lack of incentive for mining companies to hedge, or lock in a guaranteed future sale price for their gold, has changed the face of the gold supply landscape in the last decade.

One difference between now and back then is simply there are more buyers and fewer sellers, which sounds a bit clichéd, Matthew Turner, an analyst at Mitsubishi said.

But then we had central banks selling and we had mining companies selling forward, which was almost an exogenous shift in a sense. So that is probably a swing of about 1000 tonnes a year. So it's not just investment. A lot of things have to turn around in a sense for the price to go down a lot, he said.

FEAR CACHET

And while talk of recovery does not look to be a huge threat for gold, economic risk factors still have the ability to fuel prices in the market's capital protection mode.

Potentially explosive factors are further stings in the euro zone and a post-election stumble in the United States.

I still think that not only are we going to get further defaults from Greece but new defaults elsewhere in the periphery, Capital Economics chief economist Julian Jessop said.

In the environment I'm talking about, where the euro is breaking apart, the dollar may well be one of the strongest of the paper currencies, but gold will do better than paper currencies of all types. If this happened, we'd see gold moving over $2,000 an ounce, he added.

At the same token, the Fed's $2.5 trillion bond-buying programme is due to expire at the end of June, with some taking that as an appropriate time for another round of injecting liquidity.

So if you are looking for the Fed to do something fresh, probably you would look for the language to shift slightly ahead of FOMC meetings in the run up to the end of the first half, Credit Suisse analyst Tom Kendall said.

So what are the odds of a new record high in the price?

Since gold first broke above 1980's then-record $835 an ounce in late 2007, it has not gone this long without striking a fresh all-time high since the doldrums of early 2008 to late 2009, when the world plunged into, and out of, global financial crisis.

Gold's inability to outshine cash in times of a credit crunch was well documented at that time and part of the reason behind its slip from record highs has been attributed to strains in the lending market in the latter stages of 2011.

After the credit crunch of late 2008, gold took another 400 days to hit a new record high. It's been 147 days since the last record high, so a similar recovery period would push a theoretical all-time price high for gold out to April 2013.

(Adds spot gold price to MARCH 28 story, no other changes to text)

(Editing by William Hardy)