Precious metals plummeted on Tuesday in a widespread commodities sell-off on a firm dollar and weak oil that sent gold, silver and palladium to hefty losses.
Gold sank seven percent to almost $560 an ounce - a 10-week low - silver tumbled more than 13 percent, and palladium fell by 12 percent to a three-month low.
"We saw risk aversion coming out through the equities markets and spilling over into commodities," a precious metals trader in London said. "I don't think we have any clear signals that it's over yet," the trader added, referring to the recent sharp falls in prices.
Spot gold fell as low as $562.40 an ounce - its weakest since March 29 - and at last check fetched $562.00/562.70 in New York, versus $605.60/6.30 late on Monday.
According to Reuters charts, it was the biggest one-day fall in at least 13 years.
In futures, August delivery gold was down $44.50 or 7.3 percent at $566.80 on the New York Mercantile Exchange's COMEX division, dealing between $611.70 and $565.50 - its cheapest level since March 24.
"It was all margin selling and liquidation by the funds," said George Gero, vice president at RBC Capital Markets Global Futures. "No buyers appeared until the market was $40 down."
Gold has fallen $170, or 30 percent, from its 26-year peak of $730 a month ago but is still up 9 percent from the start of the year and almost 30 percent since the beginning of 2005.
The metal was weighed down as the dollar hit six-week highs against the euro after a higher-than-expected reading of core US inflation heightened expectations for more Federal Reserve interest rate increases.
Oil fell more than one percent to below $70 a barrel as risk-averse investors fled from commodity markets, spooked by fears of rising interest rates and higher inflation. Gold often tracks oil prices because investors use the metal as an inflation hedge when energy prices are high.
"There was a bubble brewing in commodities quite clearly and whether or not the bubble has burst, that is still too early to be sure. But suddenly the appetite for risk has changed," said Stephen Briggs, economist, SG Corporate and Investment Banking.
"We are not convinced that the bubble is over yet. This is a major correction but it's not the end of the bull market. Many investors are still bullish," he said.
Gold shares in South Africa, the world's biggest producer of the metal, suffered their biggest one-day fall in nearly four years. The gold mining index fell more than 10 percent to 2,281.64 points.
The fall in commodity prices dragged down the Reuters/Jefferies CRB Index, which tracks 19 commodity futures, to a two-month low. Copper futures on the London Metal Exchange fell six percent.
"Investors don't want to take new positions in gold when they aren't sure about the outlook of US interest rates," said Hiroyuki Kikukawa, associate director of Nihon Unicom Corp.
In other precious metals, silver fell to a three-month low at $9.56/9.66 an ounce, against $11.03/11.13 previously. Prices have fallen almost 60 percent from its 25-year peak of $15.17 on May 11.
Palladium fell to $275 an ounce and closed near $272/277, against $311/316 previously. Platinum fell to a six-week low at $1,120 an ounce before ending at $1,116/1,120, versus $1,168/1,172. The metal spiked to an all-time high of $1,338 last month.
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