Gold fell over 2%, approaching this year’s lows and briefly breaking below $1,600 an ounce as fresh concerns over the eurozone debt crisis triggered a technical sell-off.
Bullion, which has largely failed to rally on economic uncertainties this year, was on track for its biggest one-day drop in two months. Yesterday’s tumble cut gold’s yearly gain to just 2%.
Option volatility based on gold exchange-traded funds also spiked and was set for its biggest daily jump in 2012 as investors flocked to the protection of put options against further downside risk in bullion prices.
Analysts said political uncertainty in Greece and a change of leadership in France had investors doubting whether Europe would come through with the billions of euro needed to bail out its troubled economies.
“Absent new monetary stimulus, gold doesn’t make sense. When people are fearful of the fiat currencies eroding their wealth, that’s when gold catches its bid,” said Jeffrey Sherman of asset manager DoubleLine Capital.
Spot gold fell 2.1% on the day to $1,603.11 an ounce by 5.30pm, having earlier hit a low of $1,594.94, which marked the cheapest price since Jan 4.
Gold’s 2% decline was its largest since Feb 29, when it plummeted 5% after US Federal Reserve chairman Ben Bernanke did not hint at a third round of government bond purchases, or quantitative easing, which has underpinned the metal.