Gold fell by more than 3 percent on Thursday, set for its largest monthly decline since January, after the Federal Reserve's move to boost U.S. growth lifted the dollar, which battered the commodities complex.
Adding to the pressure was a key gauge of Chinese manufacturing that showed a third consecutive month of contraction, which sent palladium to its lowest in 10 months.
The Reuters-Jefferies CRB index of commodities was set for its biggest one-day slide since the flash crash in raw materials prices in early May this year.
Warning of significant downside economic risks, the U.S. central bank said it would launch a $400 billion programme to shift its $2.85 trillion balance sheet more heavily towards longer-term debt.
The decision, while widely-expected, disappointed investors who had hoped for stronger stimulus measures, which prompted a slide in stocks and commodity prices.
The dollar index rose to seven-month highs after the Fed's decision heightened the appeal of shorter-dated U.S. debt and gave the greenback's yield-appeal an edge over that of other currencies, which in turn delivered a blow to gold.
Spot gold was last down 3.2 percent at $1,724.79 an ounce by 1408 GMT, its lowest since late August. December gold futures were down 4.4 percent at $1,729.50.
Everyone says they're concerned about economies everywhere, but I suppose it's dollar strength. That's what I'm putting it down to, said Peter Hillyard, ANZ head of metal sales in Europe.
The textbook ideas, the things we follow, the things we believe to be so are being shot to pieces for the moment and it's very difficult to trade other than for a long-term view, he said.
Gold has fallen by 4.8 percent so far in September, plagued by rising volatility and the strength of the dollar, although so far this quarter, it has hit record highs above $1,900 an ounce and is up 18 percent in its largest quarterly rally in 25 years.
Looking at gold, you have periods when you have strength in the dollar and rising gold, when both are seen as safe-havens, but right now, you'd have thought that gold would be well supported given the European situation, the U.S. situation and a slowing China, said Societe Generale analyst David Wilson.
It's really the dollar rally that is not particularly helpful, he said.
INVESTORS WARY BUT STILL BUYING
Global holdings of gold in exchange-traded products fell since the end of August, as investors grew wary of its wide price swings and the uncertain economic outlook cut their appetite for any kind of risk.
After hefty inflows of metal late last week, however, the global gold ETFs tracked by Reuters have shown a rise of nearly 300,000 ounces of metal this month, indicating that investor appetite for gold is intact.
Investors are shifting their attention to the Group of 20 talks, due to take place in Washington on Thursday and Friday, where Europe will be under heavy pressure to stem its deepening debt crisis.
In other metals, palladium, used mainly in catalytic converters to reduce vehicle emissions, fell to its lowest since last November after the HSBC China Flash Purchasing Managers' Index showed a third monthly consecutive contraction in factory activity.
The index dipped to 49.4 from August's final figure of 49.9. A reading below 50 indicates contraction.
Economists and Chinese officials have widely predicted China's growth will slow, largely because of waning exports. The country, known as the factory to the world, is especially vulnerable to fading demand from the United States and Europe, its two biggest export markets.
Palladium relies heavily on the Chinese car market for demand, where it is used in autocatalysts in gasoline-powered vehicles.
Imports of the metal rose by 9 percent year-on-year last month to their highest in five months, but evidence of a slowing China has cut investor appetite for palladium, as reflected by the 15 percent fall so far this year in holdings of the metal in ETFs.
Spot palladium was last down 5.0 percent at $652.00 an ounce, while most-active U.S. December palladium futures PAv1 were down 8.1 percent at $655.70 an ounce in their largest one-day fall since May 2010.
Platinum was down 2.4 percent at $1,714.99 an ounce, while silver was down 6.7 percent at $36.95 an ounce.