Gold sustained its biggest one-day loss in nearly two months on Thursday, falling more than 2 per cent as investors fearful of deepening European woes bailed on commodities and technical triggers set off sell orders.
Any vestige of safe-haven buying was swept aside amid a scramble to raise cash. Silver also tumbled more than 6 per cent amid margin calls from outside markets as the S&P 500, crude oil futures, industrial metals and grains fell against the backdrop of global economic uncertainty and euro debt fears.
Gold and other commodities also suffered as prices breached key technical levels. Losses accelerated after gold broke below its 50-day moving average and a three-week upward trendline. It has now lost around 4 per cent in the past 4 sessions.
"It's all technicals. The renewed comfort level with the U.S. dollar and dollar-based assets has taken away any fresh buying in the gold market," said Carlos Perez-Santalla, precious metals broker of PVM Futures.
This week's slump has turned the tables on a market that had once again begun rising toward September's all-time high -- not because of its value as a hedge against turmoil, however.
Over the past few weeks, gold has confounded market watchers by tracking equities, even as the European debt crisis escalated. That trend was reinforced on Thursday as the cost of insuring French and Spanish five-year government debt against default surged to record highs, but bullion fell.
Spot gold was down 2.5 per cent at $1,718.44 an ounce by 4:04 p.m. (ET). It hit a session low of $1,709.64 an ounce, the cheapest price in around three weeks.
The S&P 500 Index lost close to 2 per cent of its value, while the U.S. dollar index and U.S. Treasuries were bought as safe-havens and rose.
"On Wednesday, gold closed below its 10-day moving average for the first time in about a month. It's very likely we could have more weakness in the next few days," said Erik Gebhard, principal of futures broker Altawest.
U.S. December gold futures settled at $1,720.20 an ounce, down $54.10 or 3 percent on the day. Futures volume has exceeded its 30-day norm for a second consecutive day, bucking a recent slow trading pace.
Spot silver fell over 6 per cent to $31.57 an ounce.
Investors liquidated positions in gold as a broad range of commodities slid, with the broad Reuters-Jefferies CRB index falling more than 2 per cent, its biggest drop in two months. The outlook for raw materials demand dimmed as economic fears lifted borrowing costs in the euro zone.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust climbed 0.72 per cent from Tuesday to Wednesday, while that of the largest silver-backed ETF, New York's iShares Silver Trust remained unchanged for the same period.
Despite Thursday's sell-off, a report by metals research firm Thomson Reuters GFMS forecast the average price of silver to rise to $45 an ounce in 2012, as investment demand is expected to support it.
"The main driver of the price remains investment demand, which has absorbed the substantial market surplus ... that has characterized the silver market in 2011," GFMS said.
World investment demand for silver, including coins and metals, is expected to reach 278 million ounces this year, the second highest volume after 2010. Further gains are expected for 2012, it added.
Among platinum group metals, platinum fell 2 per cent to $1,578.24 an ounce and palladium fell 6.6 per cent to $603.50 an ounce.