Gold tumbled about 2 percent early on Tuesday, hit by heavy stop-loss orders placed by momentum traders as prices broke below the key 200-day moving average. Silver and platinum group metals also sold off after Monday's rally across the board.
In the 10 minutes between 8:20 am and 8:30 am EDT (1220-1230 GMT), trading volume in US gold futures measured nearly 20,000 lots, or one-fifth of the total turnover at the time. Prices plunged $15 at 8:27 am in just a minute, ahead of the release of higher US consumer inflation data.
A bout of stop-loss orders placed by "trend followers" cascaded into each other when prices sank below their 200-day moving average near $1,300 an ounce, said Frank McGhee, head precious metals dealer at Chicago commodities brokerage Alliance Financial LLC.
Gold's sharp pullback came even as Ukrainian armed forces on Tuesday launched a "special operation" against militiamen in the country's Russian-speaking east. Spot gold was down 1.9 percent at $1,300.51 an ounce by 1:27 pm EDT (1727 GMT). Earlier, gold hit a low of $1,290.34 an ounce, and at the time was on track for its biggest one-day drop since October 1.
US COMEX gold contract for June delivery was down $25.20 at $1,302 an ounce. Traders said the yellow metal's recent short-covering rally, after the Fed's March meeting minutes last week showed officials were not keen on increasing interest rates straight after unwinding bond purchases, was susceptible to a sell-off.
In physical-market news, Chinese firms may have locked up as much as 1,000 tonnes of gold in financing deals, a report from the World Gold Council said, indicating a big slice of imports had been used to raise funds due to China's tight credit conditions rather than to meet consumer demand. Silver prices tracked gold lower, hitting their lowest since February 4 at $19.24 an ounce, down 3.4 percent. They were later down 2.2 percent $19.49 an ounce.
Among other precious metals, palladium fell more than 2 percent after five straight days of gains, retreating from 2-1/2-year highs hit earlier this week on fears US sanctions on No 1 producer Russia would curb supply and on prolonged mine strikes in South Africa. Palladium was down 1.9 percent at $790.97 an ounce, while platinum fell 1.7 percent to $1,435 an ounce.
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