By Jan Harvey of Reuters LONDON - Gold has erased early gains to tumble to a six-week low as selling precipitated by a sharp rebound in equities pushed the metal through key technical support levels near $US1,200 an ounce. Spot gold slipped as low as $US1,189.55 an ounce and was bid at $US1,192.00 an ounce at 1409 GMT, against $US1,206.95 late in New York on Monday. US gold futures for August delivery fell $US14.80 an ounce to $US1,192.90. The $US1,200 mark is providing good support to gold, with physical demand emerging as prices slip further from June's record $US1,264.90. But its swift retreat from that level has knocked some investors' confidence in the metal, traders said. "The recent volatility is keeping a lot of people cautious," MKS Finance head of trading Afshin Nabavi said. "But in my view, the world has not changed, politically or economically. "But there are physical-related buyers looking for bargains," he added. "So let's see who is going to win." Concern over the sluggish economic recovery and the stability of the financial markets has lifted demand for gold as a haven from risk this year, pushing prices sharply higher. As those fears recede, gold could struggle to hold onto its gains. On the wider markets, world stocks bounced on Tuesday from a recent five-week low in a broad risk rally that boosted oil prices, while investors sold off the dollar and government bonds. European shares were up 2.65 per cent in the early afternoon, while Wall Street stocks opened higher. US stocks held onto their early gains after data showed non-manufacturing activity grew at a slower rate in June than expected, according to the Institute for Supply Management. Better appetite for risk hurt the dollar, which slipped 0.7 per cent against a basket of six other currencies, but boosted commodities, with oil climbing 1.3 per cent. Gains expected In the longer term, uncertainty over the direction of the global economy and other factors are still seen supporting gold, with many analysts still seeing the metal ending the year at record highs above $US1,300 an ounce. "Given the host of different factors – ranging from concerns over the shape of economic recovery to fears of inflation supporting gold prices – remain unhinged (irrational), we would expect gold prices to test higher highs as the year unfolds," Barclays Capital said in a note. Physical gold demand picked up a touch after last week's correction from record highs, as the metal became more affordable for buyers. Indian buying continued as traders in the world's biggest gold consumer picked up bargains ahead of a second round of festivals and watched the rupee for direction, dealers said. Silver was at $US17.65 an ounce versus $US17.75, platinum at $US1,508 an ounce against $US1,506.50 and palladium at $US432.50 versus $US428. "Since late May, a significantly lower platinum price has prompted very real demand, both industrial and for jewellery," UBS analyst Edel Tully said in a note. "Chinese jewellery demand – as measured through platinum turnover on the Shanghai Gold Exchange – has been particularly apparent since mid May."

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