Gold drops amid sharp equities sell-off

NEW YORK (Reuters) - Gold prices dropped on Friday amid a sharp equities sell-off, driven by renewed worries that the nascent economic recovery might not be sustainable.

Gold prices posted their first weekly losses since the week of September 25, following four consecutive weeks of gains.

Historically, gold moves in opposite direction to stocks because of bullion's appeal as a safe haven amid economic crises. But gold recently has climbed in tandem with rising equities amid currency and inflation worries.

Mark O'Byrne, a director at bullion dealer GoldCore, said that gold's inverse correlation with equities should hold in the longer term.

U.S. December gold futures settled down $6.70 at $1,040.40 an ounce on the COMEX division of the New York Mercantile Exchange.

Spot gold was at $1,040.85 an ounce at 2:58 p.m. EDT (1858 GMT), against $1,044.95 late in New York on Thursday.

The dollar rose on safe-haven buying after steep losses in the previous session. Gold moves in a close inverse relationship with the dollar, as the metal becomes cheaper for holders of other currencies when the U.S. unit weakens. <FRX/>

The euro-dollar rate has moved in recent sessions in line with risk appetite, with the U.S. currency tending to benefit from rising risk aversion and falling share prices.

Jonathan Jossen, a COMEX gold options floor trader, said that investors have been selling everything from stocks to commodities and gold, as the dollar index .DXY climbed to near 78, a technical breakout level.

GOLD EQUITIES TUMBLE

Wall Street stocks slid on Friday as reports painting a mixed economic picture dashed hopes brought by the economy's return to growth. .N

Meanwhile, the Gold BUGS (Basket of Unhedged Gold Stocks) index, a gauge of gold mining stocks commonly called the HUI index .HUI, tumbled as much as 5 percent amid the equities rout.

Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, were unchanged on Thursday after three sessions of declines. <GOL/SPDR>

Among other precious metals, spot silver was at $16.21 and ounce, against $16.63 an ounce late on Thursday.

The world's largest silver ETF, the iShares Silver Trust in New York, said it had an inflow of 131.43 tonnes on Thursday.

As well as strong investment buying, traders said they were also seeing a pick-up in industrial demand for silver. The metal is primarily industrial in application, and is widely used in electronics manufacturing.

Platinum was at $1,319.50 an ounce against $1,337.50, while palladium was at $320 against $325.50.

(Reporting by Frank Tang and Jan Harvey in London)