Gold's rise to a fourth consecutive record high unraveled late on Tuesday after an extended midday gain in the dollar and an increase in silver futures margins sparked a wave of profit-taking.
After gaining early in the session on safe-haven buying, fuelled in part by concerns about Irish and Portuguese debt, gold prices reversed course in the U.S. afternoon to fall back below $1,400 (U.S.), down more than 1 per cent on the day.
Silver reversed from a 30-year high in record high trading volume, falling in tandem with oil and grains.
Without a clear trigger for the mid-session gains in the U.S. dollar index, which was up more than 1 per cent by 3:52 p.m. ET, dealers began to look closer at Comex silver, where preliminary trading volume was over four times its average.
Some traders said a rise in margins to $6,500 a contract from $5,000 had aided the selloff in a market that was due for a correction after gold outperformed in the past few months.
"The selloff started because the market had gone too far too fast," said Frank McGhee, head precious metals trader with Integrated Brokerage Services LLC in Chicago. "The margin change added insult to injury," he added, but said it was not the primary factor driving the after-hours selloff.
Gold had earlier risen in tandem with the dollar for a second straight day, as investors poured into both the metal and the U.S. currency as safe havens. Analysts said gold's unusual positive link with the greenback was similar to what happened earlier this year amid eurozone sovereign debt fears.
The euro struggled for a third straight session, swinging from gains to losses as investors worried about Irish and Portuguese debt and hedged sizable bets against the U.S. dollar.
Gold has risen as much as 8 per cent since just before the Federal Reserve detailed its plans last Wednesday to buy $600-billion worth of Treasuries to revive the economy, but the Fed's actions also stoked inflation fears.
Spot gold scaled a record at $1,424.10 an ounce, but then fell by 1.7 per cent to $1,386 in late New York trade.
U.S. gold futures for December delivery settled up $6.90, or almost 0.5 per cent, prior to the day's reversal. Spot silver surged as much as 6 per cent to a 30-year high of $29.33, but later fell by more than 3 per cent to $26.80 in exceptionally volatile trade even by silver market standards.
Comex silver futures volume was above 191,000 lots, preliminary Reuters data showed, breaking the previous record of 127,890 lots set in 1976. The benchmark December contract settled up $1.474 at $28.906 an ounce.
The premium that investors are demanding to hold Irish and Portuguese government debt shot to record highs on concern about funding and potential default. This prompted European investors to seek a safe-haven investment such as gold.
Also on the radar is this week's G20 summit. Officials from Germany, Brazil, China and South Africa are among those expressing concern that the Fed's policy could weaken the dollar and drive up commodity prices.
Gold priced in euros has rallied by more than 7 per cent in the last five sessions, rising to its highest since late June this year.