Gold sinks 3 percent on cash need as stocks slide

By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold dropped nearly 3 percent on Wednesday to a two-week low on liquidity need due to stock market losses and after worsening job market data dashed hopes of an inflation-driven gold rally in the near term.

U.S. stock markets broadly slid over 3 percent, with the Dow Jones industrial average index falling nearly 300 points as a bleak U.S. private-sector job report by ADP added to signs that the recession is deepening. .N

"It's hard to determine whether it's just a panic in the (gold) futures, or people are just trying to cash out to meet margin calls as funds are liquidating," said John March, chief technical analyst of precious metals dealer Superior Gold.

Traders also cited chart-based selling as bullion has repeatedly failed to break above technical resistance above $885 an ounce.

Spot gold was at $840.00 an ounce at 1:45 p.m. EST (6:45 p.m. British time), down 2.7 percent from the last trade of $863.35 on Tuesday. Earlier it touched a two-week low of $834.80.

Gold for February delivery settled down $24.30, or 2.8 percent, to $841.70 an ounce on the COMEX division of the New York Mercantile Exchange.

Spot silver tracked gold lower to a last quote of $11.09 an ounce, down 3.1 percent from its previous session close of $11.44.

"What we see are worries of further (gold) price declines. The unemployment data confirms a lacklustre and disinflationary environment, which is really undermining gold and silver," said James Steel, chief commodity analyst at HSBC.