Gold bullion dropped below $400 for the first time in almost two months in Europe on Thursday, shedding $11 on the way, as prices followed a soaring dollar on the back of US jobs data and anticipation of higher interest rates.
The market surprised itself by the quick free-fall and turned its attention away from a string of developments concerning central banks, they said.
"Gold hit sell stops below $403 - that's what did it. We expected a little bit more of support with some physical buying," one trader said. "The feeling is, now we have fallen through the support, where do we stop? It could be a very painful day for some people."
"I've not even looked at the central bank story, to be honest," he said.
Traders said the outcome of Wednesday's US policy meeting by the Federal Reserve Open Market Committee (FOMC) had taken the steam out of gold, which had peaked to $414.60 in Europe the previous day.
Although interest rates were left unchanged as expected, the Fed's statement was seen as a step towards higher interest rates, and this had lifted the dollar to a one-week high.
The dollar was then buoyed by fresh US labour data which showed the number of Americans lining up to claim first-time unemployment aid edged lower last week.
By 1625 GMT spot gold was at $399.00/399.75, down more than $10 on New York's close of $410.10/410.80. The euro was at $1.2390/94, almost two and half cents below its high.
Traders and analysts said the next support for gold bullion was at $390.
"We've got to get through quite a bit now before we can be constructive again. But if we finish the day back above $401, we may see the market pick up again. Otherwise, it will target $390," Peter Hillyard, head of metal sales, Europe, at ANZ Investment Bank, said.
The German Bundesbank announced its wish-list for any new central bank gold sales agreement (CBGA) on Thursday, following hot on the heels of a Norwegian sales statement and Japan comments about reserve weighting on Wednesday.
It said it would like an option to sell 120 tonnes of gold per year under a new accord, which expires in September, or four percent of total stock.
The agreement allows the 15 signatory central banks to dispose of excess gold without flooding the market.
On Wednesday, the market absorbed news that Japan was considering the low weighting of gold in its reserves and that the Norwegian central bank had sold 16 tonnes of gold.
"This is old hat and the market knows it," Hillyard said. "The Bundesbank news was in line with expectations. Only the Norwegian sale was a bit surprising, but it's not that significant."
Other precious metals followed gold south.
Silver picked up after a tumble below key $6.20 support and was indicated at $6.24/6.26, but that was still more than 25 cents below New York's $6.51/6.53 close.
Platinum was at $828.00/833.00, below New York's $853.00/858.00, while palladium was indicated at $228.00/233.00, against $240.00/245.00.
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