Gold dropped 4 percent on Wednesday as a sharp rise in U.S. durable goods orders and uncertainty ahead of Federal Reserve Chairman Ben Bernanke's speech to central bankers sparked bullion's biggest one-day drop in 2.5 years .
Selling spiraled out of control amid forced liquidation in U.S. gold futures by managed money, traders said.
Gold is now more than $150 below Tuesday's record of $1,911.46 an ounce driven by intense speculation the Federal Reserve may be planning another round of stimulus for the sluggish U.S. economy.
Analysts said it was time for gold investors to take money off the table after a safe-haven rally extended too far, too fast in recent weeks. Bullion rose as much as $400 since July.
You have a commodity that retail investors, hedge funds and everybody were long, and the technical indicators showed it was overbought. It was just a matter of time before the market starts cracking, said Mihir Dange, COMEX gold options floor trader for Arbitrage LLC.
Spot gold was down 3.6 percent to $1,762.89 an ounce by 2:27 p.m. EDT, off its session low of $1,750.29.
Before Tuesday's 4-percent drop, it had surged nearly 9 percent.
U.S. gold futures for December delivery settled down $104 at $1,757.30 an ounce. That is the biggest price drop of COMEX continuous, front-month contract since January 22, 1980, when it tumbled almost $150, Reuters data showed.
Trading pace was hectic with volume already topping 410,000 lots, set to be one of the busiest sessions of the year.
Silver dropped 5.7 percent to $39.43 an ounce.
Gold was under pressure after data showed new orders for long-lasting U.S. manufactured goods rose in July, offering hope the ailing economy could dodge a second recession.
Analysts warned of a sharp correction from this month's rally was possible, especially if Friday's central bank meeting at Jackson Hole does not result in a Fed announcement of a third round of government bond buying, or quantitative easing, also known as QE3.
The correction really should be taking place now, because of all the (bets) on the table, said Ashok Shah, chief investment officer at London & Capital.
But the journey is not complete until Jackson Hole is done, Shah said, referring to an annual central bank conference in Jackson Hole, Wyoming starting on Thursday
CALL-PUT SPREAD NARROWS, MARGINS EYED
On the options front, the spread between the 25-day implied volatility of COMEX gold and that of put options has narrowed since Monday, a sign that gold option investors were turning bearish.
The CBOE gold volatility index is near at its highest since April 2009.
Investors also were watching for potential gold margin requirement hikes from the CME Group, after the Shanghai Gold Exchange and Hong Kong Mercantile Exchange had raised margins on some of gold contracts this month.
Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by nearly 25 tonnes on Tuesday, their biggest one-day outflow since January 25.
Among platinum group metals, platinum dropped 2.4 percent to $1,812.99 an ounce, and palladium was down 1.2 percent at $747.72 an ounce.
(Editing by David Gregorio, Marguerita Choy, and Bob Burgdorfer)