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there is a speed sensor on the rear of the motor just above the rear output shaft. there are two bolts that hold it in. more than likely it is going out.
 

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QUOTE ("hmiller79":2i2qfoii)
What causes the speedometer to bounce around when the bike is in neutral?
The speed sensor is usually ok, it is just picking up the vibration from the output shaft. Usually only see this on Rancher 350s and is easily fixed. Remove the sensor and shim it w/ a gasket. Either make your own or use a cam chain tensioner gasket from a 450 or other engine w/ an external tensioner (350 Ranchers have an internal tensioner and don't use a gasket).
 
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