Gold crashed more than $100 lower on Friday as a slide turned into a freefall, with weeks of volatility, renewed strength in the dollar and talk of hedge fund liquidation wrecking its safe-haven status.
Widespread talk of possible selling by big hedge funds covering losses in other markets set off one of the biggest routs on record.
Silver futures, which had attracted even more speculative funds over the past year, closed 18 percent down, the biggest daily loss since 1987.
Mounting fears this week of a global recession and a deepening Greek debt crisis made investors treat precious metals like any commodity, ignoring the safe-haven appeal that had made them a must-have in times of trouble.
Gold slumped more than 6 percent at one point -- its biggest slide since the financial crisis in 2008 -- to hit early-August lows as this week's losses accelerated.
The selloff came even as stock and oil markets stabilized after Thursday's rout. Adding to Thursday's losses, gold is down almost 9 percent over the last two days, while silver has lost nearly 25 percent. In the case of gold particularly, it was the third-sharpest daily loss in the past 20 years.
I'm sure talk of hedge fund liquidation is helping to pressure things, though there's no confirmation of any single fund selling, said Jonathan Jossen, an independent COMEX trader.
Despite its steep losses this week, gold remained up 16 percent year-to-date, thanks to gains from earlier months. But silver turned negative, with the spot price down almost 1 percent for the year. By 2:45 p.m. EDT (1845 GMT), the spot price of bullion was down 5.5 percent at $1,641 an ounce, after falling to a session low under $1,628.
The move was more than 5 standard deviations beyond the normal one-day change. At $127 an ounce, the intraday move was the biggest on record in dollar terms.
U.S. gold futures' benchmark December contract on COMEX settled down 6 percent, or more than $101, at under $1,640 an ounce. Spot silver was down 14 percent at a seven-month low below $31 an ounce.
Benchmark silver futures closed down nearly $6.50 at around $30.10 an ounce. We're making new lows and the bull case for gold is on pause for the near term, said Adam Klopfenstein, senior market strategist for precious metals at MF Global in Chicago.
In the near term, the flight-to-quality interest in owning gold is also out of the window as people are not interested in buying it even in the face of fears in the economy. Until it stabilizes, I'm staying out of this market.
Gold appeared detached from almost every market, ignoring a mild dip in the U.S. dollar index .DXY as the selling accelerated. The plunge took out several key technical supports, including the 100-day moving average for the first time since February.
Two months of extraordinarily volatile trading as gold struggled to cling near a record above $1,900 an ounce has unnerved some investors who piled into bullion as a haven of stability in the face of euro zone turmoil and recession fear.
But the risk-off trade that benefited gold most of this year abruptly disappeared over the past two weeks. Gold suddenly fell in tandem with stocks. Gold's fall is a bit surprising.
The fact that it has been so volatile lately is perhaps discouraging people from even buying the dips, said Peter Buchanan, senior economist at CIBC World Markets.
The precious metal also began trading inversely to a newly resilient dollar, as some investors bet bullion had become overly inflated.
A New York Times story about hedge funds likely liquidating some of their gold holdings after a year-long rally appeared to spur speculation that one specific manager had been selling, although there was no evidence to bear that out. The story did not name or cite any specific funds as behind the selling.
While gold has fallen sharply this week, trading volumes have been strong but not yet near the record levels of August. By late in the session on Friday, COMEX futures volume of 323,000 lots was 25 percent above the one-month average, but about a quarter less than recent peaks.
There are a lot of people saying it's margin calls on other assets, but I think more so it's that there's panic around and people getting out of positions they think are over-leveraged and risky, said Matthew Turner, precious metals strategist at Mitsubishi Corp in London.
He said that just a month ago, speculators saw gold as an inflation hedge as the Federal Reserve was expected to take stronger stimulus action on the U.S. economy.
But the Fed chose just to tweak its bonds portfolio this week to keep long-term rates down, under a $400 billion program that did not expand its balance sheet.
Now the inflation argument is looking a little threadbare, the Fed not doing as much as hoped on the QE front. Now it's more a deflation risk.