* Gold gets caught up in selling of other assets
* Bullion still ultimately seen extending Q2 gains
* Platinum, palladium biggest fallers on growth concerns
(Releads, updates prices, adds comment)
By Jan Harvey
LONDON, July 1 (Reuters) - Gold prices dropped towards
$1,220 an ounce on Thursday, caught up in selling of other
assets like equities and industrial commodities after U.S.
economic data disappointed the financial markets.
The metal is expected to extend its recent gains in the
medium term, however, after outperforming most other commodities
and all other metals in the second quarter as investors turned
to bullion as a haven from risk in the wider markets.
Spot gold <XAU=> hit a two-week low of $1,221.35 and was bid
at $1,224.30 an ounce at 1501 GMT, against $1,241.35 late in New
York on Wednesday. U.S. gold futures for August delivery <GCQ0>
slid $20.60 to $1,225.30.
"Gold has been caught up in commodity liquidation after poor
data and as equities (fall)," said Simon Weeks, head of precious
metals at the Bank of Nova Scotia.
"Usual story -- selling first, as people need cash... and
then further down the road, the gold as a currency demand will
kick in."
Equity markets in London and New York extended losses on
Thursday after data showed a slower-than-expected rate of
manufacturing growth in June and a sharp drop in May pending
home sales. []
The dollar extended losses against the euro, while oil
prices also tumbled 4 percent and base metals like copper, zinc
and nickel slipped sharply. [] [] []
Investors are now awaiting key U.S. payrolls data on Friday
as an indicator for the next direction of trade.
"The labour market report is quite critical because a lot of
the recent consumer confidence drop came about because people
are concerned about their employment prospects," said Michael
Widmer, an analyst at Bank of America-Merill Lynch.
"If you do get a slowdown, the picture for some of the
cyclical asset classes may be perceived to be not as strong...
and that could be quite positive for gold overall."
GOLD SEEN EXTENDING OUTPERFORMANCE
In the medium term gold is still seen well-supported by the
threat of slowing global growth and further financial market
instability, after a strong performance in the second quarter.
Many commodities struggled in the second three months of the
year as a soaring dollar and doubts about the strength of the
economic recovery sapped demand for raw materials.
The benchmark Reuters Jefferies CRB index <.CRB>, which
covers 19 mostly U.S.-traded commodities, finished down about
5.4 percent, its second quarterly loss in a row.
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For a graphic showing commodities' relative price
performance in the first half, click on:
http://graphics.thomsonreuters.com/10/CMD_PRFG0510.html
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Investment in gold has been solid, with holdings of the
world's largest gold exchange-traded fund, New York's SPDR Gold
Trust <GLD>, still at a record 1,320 tonnes on Wednesday.
Demand for physical bullion in major consumer India was
slack, however, as high prices and seasonal factors weighed.
India saw a sharp drop in imports in June, signalling recent
record prices are weighing on demand even as the world's largest
ETF reported record holdings. []
Among other precious metals, silver <XAG=> was bid at $18.02
an ounce against $18.55.
Platinum group metals, largely used in manufacturing
catalytic converters, were among the biggest fallers, with
platinum <XPT=> down to $1,499 an ounce against $1,531.50 and
palladium <XPD=> slipping to $426.13 against $442.
"Today's U.S. auto sales data will... be monitored for a
possible slowdown in demand," said TheBullionDesk.com analyst
James Moore.
(Reporting by Jan Harvey; Editing by Sue Thomas)
