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Gold fell 2 per cent in heavy volume on Tuesday, breaching technical support as investors worried more about a possible Greek default, but some analysts said the metal looked oversold and was poised for a rebound.
Silver fell 3.5 per cent, and platinum and palladium posted their largest daily declines this year, as investors grew more cautious about the global economic outlook a day after China cut its growth forecast and data showed the European Union was not likely to avoid a recession.
Bullion broke below its 200-day moving average for the first time since mid-January, tracking U.S. equities' slide on worries Greece could miss a deadline to complete a bond swap that is part of a bailout and restructuring deal to avert a default.
Gold investors were already cautious after the precious metal tumbled 5 per cent last Wednesday on dimmer near-term prospects for another round of quantitative easing from the U.S. Federal Reserve. Gold rebounded to near $1,660 an ounce but investors remained uneasy.
"People who are long gold are getting out. They don't like what's going on with Greece and the stock market is decisively lower. It's a matter of raising money," said Jonathan Jossen, COMEX gold options floor trader.
"But the bullish option flow usually tells me we could be near a bottom," Jossen said.
Spot gold was down 2.1 per cent at $1,670.41 (U.S.) an ounce by 2:52 PM ET, having hit a six-week low of $1,663.95.
U.S. gold futures for April delivery settled down $31.80 at $1,672.10.
Trading volume was heavy, with more than 20,000 lots of the April contract changing hands within the first 10 minutes when the U.S. stock market opened. Wall Street dropped 1.5 per cent, the most in nearly three months.
Turnover was 25 per cent above its 30-day average, preliminary Reuters data showed, the highest since last Wednesday when gold fell 5 per cent.
"Everyone is trying to get out of the door at the same time," said Afshin Nabavi, head of trading at MKS Finance.
Gold's losses accelerated after the metal broke its 200-day moving average (DMA) at $1,676 an ounce. The metal had largely held its 200 DMA during its bull run since early 2009.
"A break and close under the 200 DMA would invite the trend followers to reverse longs and sell short," said Carlos Perez-Santalla, trader at PVM Futures.
Silver also sold off in gold's wake, down 3.5 per cent at $32.78 an ounce.
Gold has recently failed to benefit from the safe-haven flows that helped push it to record highs last year as investors sought the safety of the U.S. dollar.
FED VIEW IN FOCUS
Also weighing on physical gold sentiment was data showing gold imports into China from Hong Kong dipped 15 per cent in January from the previous month, reflecting slower sales after a recent surge.
Gold's latest losses follow a decline of nearly 4 per cent last week. Investors were disappointed when U.S. Federal Reserve Chairman Ben Bernanke failed to signal another imminent round of government bond purchases, or quantitative easing.
Gold remained up 7 per cent for the year, due largely to a boost in January when the Fed said it would keep interest rates near zero until at least late 2014.
Gold investors will closely watch a policy statement from the Fed Open Market Committee next Tuesday.
Platinum group metals were the biggest decliners, under pressure from the stronger dollar as well as on concerns about global growth, which has a greater effect on industrial platinum and palladium than on gold.
Spot platinum was down 2.9 per cent at $1,611.49 an ounce, off a low of $1,598.70, while spot palladium was down 5 per cent at $667.22 an ounce.