Gold fell to its lowest in more than three months and silver hit a five-month trough on Tuesday as softer oil prices and weakness in other metals triggered technical selling. Dealers said expectations of higher interest rates around the world also dampened sentiment, with the metals vulnerable to further drops before recovering.
Spot gold fell as low as $642.50 an ounce, its weakest since March 14, and was at $643.60/644.40 by 1508 GMT, compared with $650.80/651.40 late in New York on Monday.
"Gold has been struggling for a few days now. It's very much on the defensive. There are distinct signs of nervousness about the interest rate outlook," Stephen Briggs, economist at SG Corporate and Investment Banking, said.
"Ultimately the reason that matters for gold more than anything else is because of it being an asset with no yield. The opportunity cost of holding it in a rising interest rate environment increase." A fall in gold price to the $645 area might increase the chance of an acceleration down towards the low $630s, he said. Spot silver fell as low as $12.35 an ounce, the weakest since mid-January, and was last at $12.435/12.465, versus $12.845/12.875 in New York.
Traders said silver took direction from copper, which fell more than one percent, and a decline in gold prices. Other metals such as platinum, palladium, aluminium and lead also declined sharply in a broad sell-off across the metals market.
Silver's failure to hold current levels might trigger further selling, pushing prices towards $12, dealers said. "Summer has come early to the precious metals market, with few genuine flows seen across the complex," said John Reade, head of metals strategy at UBS Investment Bank.
"Active selling at the London fixings and speculative long liquidation is finding fewer than normal buyers and we suspect that the near term risk for precious metals is for further modest downside."
Key precious metals came under pressure also because of oil prices, which fell to around $71 a barrel as investors weighed ample fuel stocks in top consumer the United States and the potential for higher Nigerian crude exports.
Gold is often seen as a hedge against oil-led inflation. Market players awaited a series of US data this week. Also, the US Federal Reserve's two-day policy meeting, ending on Thursday, will be watched for clues on the central bank's views on the economy's health.
"Expectations of a more hawkish stance on interest rates by the world's central banks look set to keep gold on a back footing in the coming sessions," said James Moore, precious metals analyst at TheBullionDesk.com.
"However longer-term high energy cost, inflation and extreme volatility in the equity markets are all likely to prove favourable for gold as investors add some safe-haven protection to their portfolios," he said in a daily note.
In other metals, palladium fell to a one-month low of $360.50 an ounce and was last quoted at $362.50/366.60 an ounce, down $5 from its closing level in New York. Platinum fell to a six-week low of $1,262 before rising to $1,265/1,269 an ounce, versus $1,280/1,284.