Gold fell nearly 5 per cent to almost a nine-month low in Europe today, as a strengthening dollar and fears over slower growth prompted investors to sell off commodities.
Losses across precious metals were led by silver, which slipped 12 per cent or $1.76 an ounce in Asian trade, pulling down gold, platinum and palladium in its wake.
Spot gold hit an intraday low of $773.90, its weakest since November 20th, before recovering to trade at $785.90/786.90 at 0925 GMT, down from $811.25/812.65 late in New York yesterday.
"People are dollar-bullish at the moment," said Simon Weeks, director of precious metals at the Bank of Nova Scotia.
"The cycle has turned. Inflation will restrict the Fed's ability to cut rates, plus we have weaker growth in Europe so the euro has been suffering," he added.
"The dollar is coming out top at the moment, so people have been liquidating commodities."
A firmer dollar typically pressures bullion, which is often bought as an alternative investment to the US currency. Strength in the dollar also makes dollar-priced commodities more expensive for holders of other currencies.
The dollar hit a six-month high against the euro today after data showed a contraction in euro zone growth. The dollar has rallied 5 per cent against the single currency this month as investors worry about the spreading economic slowdown.
Oil prices have also slipped, reaching a session low of under $113 a barrel, as fears over weakening global demand dampened interest in crude.
Falling crude prices reduce gold's appeal as a hedge against oil-led inflation, and can undermine confidence in commodities as an asset class, analysts said.
Negative sentiment in the commodity markets in recent months can be seen in the performance of indices such as the Reuters-Jeffries/CRB index, which has fallen almost 18 per cent since early July.
Gold is now holding just above key support in the $770s, analysts say, with any break lower potentially taking the precious metal down to its late-October level.
"(Gold) really needs to hold here, otherwise it will slide back towards $750, which is the last vestige of the uptrend," said Calyon metals analyst Robin Bhar.
"If it loses that, the whole thing could just unravel," he said.
Silver suffered the most in the sell-off of precious metals, with prices plummeting to a low of $12.39 an ounce, their weakest since last September, in Asian trade.
Platinum and palladium slipped in silver's wake, shedding 7 per cent and 6 per cent respectively. Both have suffered significant losses in recent weeks on fears faltering global growth could affect car demand.
"The more industrial precious metals, like silver and platinum, are also being hampered by concerns about global growth -- demand for platinum in autocatalysts, and for silver in its industrial offtakes," said Mr Bhar. "That is adding to the doom and gloom."
Silver fell to $13.09/13.14 an ounce from $14.15/14.21 late in New York yesterday.
Spot platinum dropped to $1,387.50/1,407.50 an ounce from $1,481/1,501 an ounce. Spot palladium fell to $287.50/295.50 an ounce from $306.50/314.50 an ounce.
Reuters