Gold posted its biggest one-day loss since 2008 Thursday, hitting a three-month low as a wave of risk aversion swept through global markets, triggering massive technical selling in the metal.
Bullion tumbled more than 4 per cent in heavy trade, briefly falling below $1,060 (U.S.) an ounce as escalating sovereign debt fears in Europe prompted investors to bid up the dollar and unload riskier assets.
Other precious metals also fell. Silver slid nearly 7 per cent to its lowest since September, platinum dropped more than 4 per cent and palladium fell 6 per cent.
Scott Meyers, senior analyst at Pioneer Futures, a unit of MF Global, said gold has slid below technical support levels.
"There is not a lot of technical support in gold right now. It is more of a function of how the market reacts to whatever stimulus is forcing the market lower right now," Mr. Meyers said.
Risk-averse economic sentiment pummelled world stock markets, pressuring gold, oil and other commodities.
Wall Street fell more than 3 per cent on an unexpected increase in the number of Americans claiming jobless benefits, and as fiscal worries in euro-zone countries led investors to buy safe-haven U.S. Treasury debt.
Spot gold hit a low of $1,059.10 an ounce, the weakest since Nov. 3. It was last at $1,064.30 an ounce at 4:07 p.m. ET, sharply lower than $1,108.85 late Wednesday.
Spot bullion's 4.2 per cent decline was its biggest one-day percentage loss since Dec. 1, 2008, when it tumbled 5.6 per cent, Reuters data showed.
U.S. gold futures for April delivery settled down $49 at $1,063 on the Comex division of the New York Mercantile Exchange.
"If you are short, you stay short, because there is no real reason to be a buyer unless the market sold off more," said Rick Bensignor, chief market strategist at broker-dealer Execution LLC.
The euro plunged to a seven-month low against the dollar. European Central Bank President Jean-Claude Trichet predicted many members in the bloc will have large, sharply rising fiscal imbalances.
Strength in the U.S. dollar makes dollar-priced commodities more expensive for holders of other currencies.
Among other commodities, oil prices fell nearly $4 to about $73 a barrel amid a global selloff, as Reuters-Jefferies CRB index also fell 2.5 per cent.
The sharp decline sent spot gold well below its 14-, 50- and 100-day moving averages. Technical analysts said gold could fall further after the selloff pushed it below major support levels, but it should hold above $1,000 an ounce.
With U.S. January non-farm payrolls data due Friday, all eyes will focus on whether the jobs report will rejuvenate gold through its influence on the dollar.
"This is a broken chart, at least short term. Unless tomorrow's job numbers somehow change the entire picture on the dollar and gold turns around, I am in the bear camp here," Mr. Bensignor said.
The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust Wednesday reported its first outflow this month. Its holdings declined 1.6 tonnes that day, after falling 21.7 tonnes in January.
In other precious metals, silver touched a low of $15.16, lowest since September, tracking gold's losses, and was last at $15.26 an ounce against $16.34. Platinum was at $1,504.50 an ounce against $1,572.50, and palladium at $408 against $434.50.