PRECIOUS-Gold drops 2.5 pct in commods rout, fear subsides

                                
 * Gold, silver tumble as fear trade takes back seat
                                
 * Commodities sharply down, seen as healthy correction
                                
 * Index rebalancing cited for gold, commods weakness
                                
 * Coming up: Private-sector ADP national employment Wed.
 (Recasts, updates prices, market activity)
                                
 By Frank Tang
                                
 NEW YORK, Jan 4 (Reuters) - Gold slid more than 2 percent
on Tuesday, its biggest one-day loss since early November, as
signs of an improving economy diminished safe-haven buying and
a profit-taking commodities rout dragged prices off highs.
                                
 Silver fell 3 percent and platinum group metals also
dropped sharply as investors unwound solid gains made on thin
volume over the holidays, when silver hit a series of 30-year
highs and palladium touched a near 10-year peak. Gold had come
within $10 of a new all-time high on Monday.
                                
 Independent investor Dennis Gartman viewed the commodities
pullback as a healthy correction driven by unwinding of strong
year-end buying by hedge funds. He noted that exchange-traded
funds were rebalancing after buying a lot of gold last year.
                                
 "Do I think that the bull market in gold and crude oil and
grain had suddenly ended overnight? No, Not at all. Can this
correction last for a week or two or three? Of course it can,
easily," he said.
                                
 Gartman said he has not changed his bullish position on
commodities, even as he abandoned a "long Aussie dollar, short
euro" strategy. The currency of resource-rich Australia is used
by some investors as a bet on commodities' rise, he added.
                                
 The Reuters-Jefferies CRB index <.CRB> dropped almost 2
percent in its sharpest one-day fall since mid-November, with
investors singling out commodities as having risen too far, too
fast during the holiday period. Wall Street dropped less than 1
percent after Monday's rally. [.N] [.EU]
                                
 Spot gold <XAU=> fell 2.4 percent to $1,380.10 an ounce at
3:41 p.m. EST (2041 GMT), falling from Monday's intra-day peak
of $1,423.57 an ounce. U.S. gold futures for February delivery
<GCG1> settled down $44.1 an ounce at $1,378.80.
                                
 Spot silver <XAG=>, which has outperformed gold since
September, fell 2.9 percent to $29.78 an ounce, retreating from
the previous session's peak of $31.22, its highest since 1980.
                                
 U.S. gold and silver futures volume was noticeably higher
than recent weeks' as traders returned after the holiday. COMEX
gold and silver turnover are 30 percent and 13 percent higher
than their 30-day averages, respectively.
                                
 Global purchasing managers' indexes on Monday showed
manufacturing growth quickened. A government report on Tuesday
showed new orders received by U.S. factories unexpectedly rose
in November, and orders excluding transportation recorded their
largest gain in eight months. [ID:nN04219375]
                                
 "I think this is more of a healthy correction. The fear
trade is backing off somewhat after gold has recently rallied
on global economic anxiety," said Mark Luschini, chief
investment strategist of Janney Montgomery Scott, a financial
services firm managing $50 billion client assets.
                                
 "Data in the last couple of days only continues to affirm
the organic strengthening in the economy, and that's not just
only in the U.S. but in the euro zone as well," he said.
                                
 INDEX REBALANCING WEIGHS?
                                
 Some traders pinned the retreat of commodities on index
rebalancing after solid gains in December.
                                
 The real test of the December rally in many commodities
came on Tuesday, when traders and investors in Japan, China and
the UK returned to work for the first fully active trading
session in two weeks. [ID:nN03135008]
                                
 A rebound in the dollar added pressure on bullion, with the
euro sliding from three-week highs against the dollar after
unexpectedly strong U.S. factory numbers. [FRX/]
                                
 Despite the decline, many analysts say gold remains a good
long-term safe-haven investment amid persistent concerns over
euro zone debt levels and the U.S. growth outlook.
                                
 Platinum group metals, mostly used as autocatalyst to clean
vehicle exhaust fumes, fell in tandem with gold and silver,
even as U.S. auto sales rose to the highest rate in 16 months
in December, as major automakers forecast the recovery would
gather momentum in 2011. [ID:nN04134889]
                                
 Platinum <XPT=> slid 1 percent to $1,747.74 an ounce, while
palladium <XPD=> lost 2.2 percent to $772.72.
Prices at 3:29 p.m. EST (2029 GMT)    
                                
                          LAST/      NET    PCT     YTD
                                
                          CLOSE      CHG    CHG     CHG
US gold         <GCG1>     1378.80   -44.10  -3.1%   -3.0%
US silver       <SIH1>      29.508   -1.617  -0.1%   -4.6%
US platinum     <PLJ1>     1743.10   -38.00  -2.1%   -2.0%
US palladium    <PAH1>      769.05   -31.35  -3.9%   -4.3%
Gold            <XAU=>     1380.66   -33.34  -2.4%   -2.7%
Silver          <XAG=>       29.79    -0.87  -2.8%   -3.5%
Platinum        <XPT=>     1747.24   -18.76  -1.1%   -1.1%
Palladium       <XPD=>      774.47   -15.50  -2.0%   -3.1%
Gold Fix        <XAUFIX=>  1388.50   -17.00  -1.2%   -1.5%
Silver Fix      <XAGFIX=>    30.67     4.00   0.1%    0.1%
Platinum Fix    <XPTFIX=>  1753.00    15.00   0.8%    1.3%
Palladium Fix   <XPDFIX=>   784.00     8.00   1.0%   -0.9%
 (Additional reporting by Jan Harvey in London; Editing by
David Gregorio)