NEW YORK, Nov 12 (Reuters) - Gold futures in New York dropped more than 3 percent and silver contracts also tumbled early Monday on a rebounding dollar and falling crude oil, as the latest wave of risk aversion swept through the precious metals markets.
However, traders were optimistic and said that a correction in the bullion market was necessary for prices to rise further after its recent strong rally, they said.
"You got to have a reversal in some of these markets. That's very healthy. Why not be down $30 on the day (for gold)? It won't surprise me," said Jonathan Jossen, an independent COMEX floor trader in New York.
At 10:30 a.m. EST (1530 GMT), most-active December goldon the COMEX division of the New York Mercantile Exchange shed $28.80 or 3.4 percent at $805.90 an ounce, after hitting a low of $803, a 10-day bottom. It touched a high of $833.60.
Yet Jossen also said that a large number of gold call options were bought as some investors were still bullish.
"Anybody that's been in commodities has huge gains. They don't think anything has changed in this market, it's just profit taking," he said.
Jossen said that he pegged chart-based support at $806 but he was not certain if that level would hold.
Before Monday's fall, gold futures had soared as much as $40 just last week and had been up about $200 from their August lows.
On Monday, currency traders were unwinding their risky carry trades, resulting in a surge of the yen versus the dollar.
The yen rose to a 1-1/2-year high against the U.S. currency, benefiting from a spike in volatility caused by nervousness about credit-related losses at U.S. banks.
However, the dollar was higher against other major currencies, prompting market players to sell gold heavily.
John Reade, head of precious metals strategy at UBS AG in London, told clients in a note that gold remained vulnerable to further losses, and the key would be the direction of the dollar.
"If risk aversion triggers further dollar weakness, then gold should hold quite well and may even move higher on safe haven buying. But if risk aversion sees some dollar repatriation, as has happened on a number of occasions in the past few years, then further losses will materialise," Reade said.
A report also showed that speculative long position in the gold futures market remained near record high.
The U.S. Commodity Futures Trading Commission said in its latest Commitment of Traders report that net specs' longs in gold futures climbed to 202,125 contracts for the week up to Nov. 6, up from 198,606 in the week earlier.
Spot goldwas quoted at $804.10/804.90, compared with the Friday New York close at $832.30/833.10. London bullion dealers fixed the afternoon spot reference price at $803.50.
COMEX December silverplummeted 79 cents or 5.1 percent at $14.755 an ounce, after trading as low as $14.670, which marked a one-week low. It hit a high of $15.500.
Spot silverwas quoted at $14.72/14.77 compared with Friday's late New York quote of $15.47/15.52. London silver was fixed at $15.15.
NYMEX January platinumwas down $34.50 or 2.4 percent at $1,391.50 an ounce. It hit a low of $1,390.10, which marked the weakest since Oct 11. Spot platinum was quoted at $1,390/1,394.
December palladiumdropped $8.45 or 2.3 percent to $367.80 an ounce. Spot palladium fetched $364/368. (Reporting by Frank Tang, editing by Matthew Lewis)
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