Gold sank 2 percent on Thursday, as month-end book squaring and relentless liquidation by institutional investors sent bullion prices below $1,200 per ounce for the first time in nearly three years.
Gold reversed early gains in New York trade, and the slide accelerated with stop-loss orders triggered after the price fell below $1,225 an ounce.
Gold has slid nearly $200 an ounce in 10 days. It is down more than 28 percent for the year and is headed for a 25 percent loss for the second quarter, its biggest quarterly decline since at least 1968.
Thursday's slide came despite gains in other precious metals and commodities, including crude oil, and even as the benchmark 10-year U.S. Treasury yield fell below 2.5 percent. Falling yields for Treasuries usually encourage buying of gold, which pays no interest.
Analysts cited forced liquidations of gold unrelated to market fundamentals, and quarter-end selling by funds polishing portfolios through the time-honored practice of window dressing.
"You don't want to catch a falling knife, so people who might be buyers are stepping aside and don't want to show gold at their quarter-end statement," said Axel Merk, chief investment officer at Merk Funds which oversee about $500 million in mutual fund assets.
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Spot gold was down 2.1 percent to $1,199.51 an ounce by 4:07 pm EDT (0031 IST). Its session low of $1,197.1 an ounce was its lowest since Aug 12 2010.
US Comex gold futures for August delivery settled down $18.2 at $1,211.6 an ounce. Trading volume was 270,000 lots, heavier than its 30-day average of 214,000, preliminary Reuters data showed.
Gold has declined sharply since Fed Chairman Ben Bernanke said last week the U.S. central bank plans to start scaling back its $85 billion monthly bond purchases in the next few months. That would tend to drive up interest rates, making gold less attractive as a safe haven for funds in a low-rate environment.
The market brushed aside comments by two Fed policymakers on Thursday who sought to dissuade investors that monetary accommodation would fade soon. In separate speeches, each went so far as to say markets have misinterpreted the U.S. central bank's intentions.
But Atlanta Federal Reserve Bank President Dennis Lockhart said the Fed could consider pulling back on its bond-buying stimulus sooner than expected if the U.S. economy grows more quickly than anticipated and the jobless rate falls rapidly.
Gold ETF outflows in focus
Investors were watching holdings of the SPDR Gold Trust, the world's largest exchange-traded gold fund, which on Tuesday posted their second-biggest percentage drop this year, down 1.7 percent or 16.23 tonnes, to their lowest in more than four years. On Wednesday, the fund's holdings were little changed.
Among other precious metals, silver edged up 0.1 percent to $18.48 an ounce, a day after it sank 5.5 percent. Platinum rose 0.9 percent to $1,313 an ounce and palladium was up 2.4 percent to $644.47 an ounce.