PRECIOUS-Gold drops to $1,200 on technicals, uncertainty

                                
 * Gold briefly below $1,200/oz on technical sell-off
                                
 * Bullion's biggest one-day loss since February
                                
 * Platinum market digesting flat US June auto sales
                                
 * Coming up: U.S. June nonfarm payrolls on Friday
                                
 (Recasts, adds comments, updates prices to market close,
changes byline, dateline; previous LONDON)
                                
 By Frank Tang
                                
 NEW YORK, July 1 (Reuters) - Gold prices dropped below
$1,200 an ounce on Thursday as a global equity-market slump and
disappointing U.S. economic indicators prompted investors to
dump the metal in a technical sell-off.
                                
 Bullion's 3.5 percent losses on Thursday was the biggest
one-day drop since February.
                                
 Silver and platinum group metals also tumbled as signs of a
slowing economic recovery and lackluster U.S. auto sales hurt
the investment appeal of the industrial metals.
                                
 "What you are seeing is clearly a nervous feeling about all
assets, whether they be tangible or intangible, paper or not.
The overall mood is bearish and metals may not be the safe
haven that you can just bank on," said Scott Meyers, senior
analyst at New York-based Pioneer Futures.
                                
 Gold held up firm in the last two days in the face of heavy
losses in the stock markets. However, gold's eventual decline
versus the S&P 500 index on Thursday was similar to a pattern
back in May.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 Graphic showing gold's correlation with S&P 500:
                                
 http://link.reuters.com/kuz35m
                                
 Graphic showing the metal's technical outlook:
                                
 http://link.reuters.com/wyv35m
                                
 Graphic with commodities' performance in the first half:
                                
 http://link.reuters.com/hun72k
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 Spot gold <XAU=> hit a near one-month low of $1,197.25 an
ounce. It was last at $1,197.85 an ounce at 3:12 p.m. EDT (1912
GMT), against $1,241.35 late in New York on Wednesday.
                                
 U.S. gold futures for August delivery <GCQ0> settled down
$39.20, or 3.2 percent, at $1,206.70 an ounce.
                                
 Open interest, an indicator of overall market and fund
trading activity, rose to an all-time high on June 30,
suggesting increasing volatility. [ID:nN01511792]
                                
 "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."
                                
  U.S. equity markets are on track to fall for a fourth
straight day after data showed a slower-than-expected rate of
manufacturing growth in June and a sharp drop in May pending
home sales. [.N]
                                
 Gold's usual inverse correlation with the dollar remained
erratic, as the greenback also tumbled on fears that the U.S.
economic recovery is stalling.
                                
 GOLD'S UP-TREND BROKEN
                                
 On technical charts, gold broke its long-term upward trend
after a sudden $30 drop on Thursday, and the precious metal
must hold above a major moving average to avoid further losses
below $1,200 an ounce, analysts said. [ID:nN01492579]
                                
 A sharp retreat of the relative strength index (RSI)
signaled bullion investors are taking profits in an overbought
market.
                                
 "You have too many people who are bullish on gold, and too
many cooks spoil a broth. So, some of the weaker hands are
getting washed out here," said Adam Hewison, president of
Maryland-based MarketClub.com.
                                
 Among other precious metals, silver <XAG=> was at $17.80
against $18.55 on Wednesday.
                                
 PGM markets are now digesting news that of flat U.S. auto
sales in June, as major automakers said there was no sign of
the definitive second-half recovery that the battered industry
had expected at the start of the year. [ID:nN01213397]
                                
 Platinum <XPT=> was at $1,498.50 an ounce against
$1,531.50. Palladium <XPD=> was at $428.50 against $442.
Prices at 3:24 p.m. EDT (1924 GMT)    
                                
                          LAST/      NET    PCT     YTD
                                
                          CLOSE      CHG    CHG     CHG
US gold         <GCQ0>     1206.70   -39.20  -3.1%   10.1%
US silver       <SIU0>      17.790   -0.918   0.0%    5.6%
US platinum     <PLV0>     1506.80   -30.50  -2.0%    2.4%
US palladium    <PAU0>      429.05   -15.35  -3.5%    4.9%
Gold            <XAU=>     1201.35   -40.00  -3.2%    9.6%
Silver          <XAG=>       17.79    -0.76  -4.1%    5.6%
Platinum        <XPT=>     1494.50   -37.00  -2.4%    2.0%
Palladium       <XPD=>      428.50   -13.50  -3.1%    5.7%
Gold Fix        <XAUFIX=>  1234.00    -6.00  -0.5%   11.8%
Silver Fix      <XAGFIX=>    18.65    -9.00  -0.5%    9.8%
Platinum Fix    <XPTFIX=>  1514.00     4.00   0.3%    3.3%
Palladium Fix   <XPDFIX=>   433.50     7.50   1.7%    7.8%
 (Additional reporting by Jan Harvey in London; Editing by Lisa
Shumaker)