Tokyo gold futures dropped by 2.5 percent on Tuesday as sharp falls in dollar-based gold and a stronger yen against the dollar induced heavy selling from fund operators and Japanese retail investors.
Tokyo Commodity Exchange gold closed the session down by the daily 60-yen limit to 2,321 yen per gram, which dragged down other precious metals, including TOCOM silver which has dropped over 10 percent since on Thursday.
"Short-term sentiment is depressed by falls in overseas markets and a stronger yen is also capping gold prices," said Takashi Ogura, manager at Kanetsu Asset Management. "But the long-term trend is still bullish.
The market is down now to correct recent sharp gains, but once the correction is over prices will rise back." Benchmark most-distant February TOCOM gold futures was pegged at the limit low level of 2,321 yen.
The spot April TOCOM gold contract expired at 2,290 yen, down 51 yen from Monday. Spot gold was little changed at $622.50/623.50 an ounce from $622.80/623.80 in New York late on Monday.
Precious metals plunged in New York, mainly driven down by silver prices as dealers locked in their profits after surges over the last few months.
Short-term investors such as funds basing their investments on Technicals were keen to take profits.
Long-term players, such as pensions, were reluctant to take new buy positions to avoid recent volatility in precious metals.
Still, market bulls were keen to buy on dips due to uncertainty over Iran and high oil prices. Benchmark US light crude oil fell from record highs above $75 per barrel on Monday, but it was still over $73.
Higher oil prices intensify inflationary pressure, which usually increases demand for gold as a key hedging instrument. TOCOM silver was pegged at the daily 18-yen limit down at 466.2 yen per 10 grams since the opening.
Dollar-denominated spot silver edged up to $11.98/12.08 an ounce from $11.86/11.96 in New York. "TOCOM silver may fall further, possibly by another limit down tomorrow," Ogura said. "It's important to watch the trend in silver to judge the trend for gold and other precious metals," he added.