Precious metals are likely to see further falls after Wednesday's bloodletting, with fears about Chinese demand seen as a convenient excuse for investors to bail out of their holdings and snap the recent bull-run, analysts said.
Precious metals steadied on Thursday after falling fast amid concerns that credit controls in China could curb its voracious appetite for raw materials but the outlook is still bearish.
Gold, having lost five as much as $14 on Wednesday, dropped to a new 5-1/2 month low on Thursday at $377.50 - still feeling the heat from Wednesday's slide.
Silver and palladium were around 30 percent and 35 percent off their April peaks, platinum slid 16 percent and gold was over 10 percent down on its 15-year January high.
Analysts said however that Chinese demand worries were masking deeper concerns over the past rush of speculative activity in silver and palladium and a strengthening dollar dulling gold's lustre for non US investors.
"Although everybody has latched onto China and worries about China, that's almost entirely irrelevant in gold really. It's been caught up in this drop because its just part of sentiment," Societe Generale economist Stephen Briggs said.
"China is an excuse, as far as gold's concerned - it's used as a reason, but gold's fall is more to do with the strength of the dollar in my view, that has been a feature of recent weeks," Briggs added.
Mitsui analyst Andy Smith said the losses showed the dangers of investing in commodities due to their illiquid nature.
"China was an excuse. This proves commodities are not secular anything - certainly not investments for speculations. It proves how illiquid all of these markets are relative to the mainstream investments and therefore how dangerous," he said.
Analysts said silver and palladium, with the biggest speculative elements to their pricing, were the most vulnerable to further declines after Wednesday's washout.
"My feeling is that the markets are dominated across the board by program traders who tend to look at things mathematically without due regard necessarily for the market's fundamentals," Ross Norman of TheBullionDesk.com said
"The white metals, particularly silver and palladium, are still overvalued and that's reflected in the high speculative positions present in both of those metals," he added.
Platinum, languishing below $800 an ounce just weeks after scoring a fresh 24-year high at $942.00, was seen as the precious metal most likely to come back strongly due to strong industrial and ornamental demand amid poor supply.
"As far as platinum is concerned, the fundamentals are still terrific and the price is still by historical standards extremely high. $800 an ounce is in anybody's language still a fantastically high price - it's just that some of the speculative froth is gone," Briggs said.
Briggs said that Belgian metals group Umicore's recent announcement about a new technology which will boost palladium use gave some justification to its rally but would not change the chronic over-supply situation. Gold was seen as less robust than platinum, but still fairly well placed for a return to form.
"We are looking for opportunities to buy gold and retain our one-month forecast of $390.00 an ounce and $410.00 in three months although there are short-term risks to the downside until fears about Chinese growth ease," John Reade of UBS Investment Bank said in a report.