Gold prices tumbled a day after the U.S. Federal Reserve dashed investors' hopes of further monetary stimulus any time soon.
The precious metal fell more than 3 per cent, hammering the share prices of several Canadian gold producers: Goldcorp Inc. dropped 5 per cent; Eldorado Gold Corp., Kinross Gold Corp., New Gold Inc. and Iamgold Corp. all fell 4 per cent; and Barrick Gold Corp. slid 3 per cent.
The sell off began with the release Tuesday of minutes from the most recent meeting of the Fed's policy-making committee that showed the central bank has no immediate plans to inject more stimulus into the economy.
Much of gold's appeal stems from the perception that it is a hedge against inflation. With no additional Fed stimulus to fuel worry about inflation, the metal's allure ebbs.
Since the Fed began pumping $2.3-trillion (U.S.) into the economy in 2008 by buying housing and government debt, the price of gold has rocketed 83 per cent, according to Bloomberg data.
The precious metal ended trading on Wednesday down $51.50, or 3.1 per cent, at $1,620.50 an ounce.
Bullion prices took a similar dive at the end of February, falling more than 4 per cent after Fed chairman Ben Bernanke avoided any discussion of additional stimulus during a speech to U.S. lawmakers.
Many investors were left wondering whether Mr. Bernanke really did intend to quash speculation about further rounds of quantitative easing, said Colin Cieszynski, an analyst with CMC Markets Canada Inc.
"In the first round, people were very quick to react to Bernanke. This is the second round of people throwing in the towel."
Since gold's last big plunge on Feb. 29, bullion prices have failed to reclaim their year-to-date high. After surging 14 per cent during the first two months of the year, to $1,784.23 an ounce, prices have given up most of those gains and now sit just 3.6 per cent above their level at the start of the year.
During the past few weeks, gold has been breaching its 200-day moving average price – a key technical measure – in several currencies, including the Canadian dollar and British pound. It broke the mark against the U.S. dollar on March 14 and on Wednesday burst through the average against the euro.
"It's significant because just as gold has its biggest moves upwards against all currencies, right now it's starting to break down against all currencies," Mr. Cieszynski said.
Other factors that have been acting as a drag on gold in recent weeks include the rising U.S. dollar and a strike by jewellers in India, the world's largest importer of gold. Jewellery makers there are into their third week of a national strike to protest higher duty on gold imports as well as a tax imposed on gold jewellery.
Shortly after hitting a record high of $1,923 an ounce early last September, gold has settled into a range between $1,800 and $1,525 an ounce. From a technical point of view, Wednesday's selloff could force prices to retest the bottom of that range, with support likely at $1,600 and $1,560 an ounce, Mr. Cieszynski said.