Gold pellets
Gold pushed back into resistance at 1620 and traders will be looking for short positions while we trade beneath 1620. Lisi Niesner/Reuters

The bottom dropped out of gold prices Wednesday as technical supports collapsed, hedge fund managers turned holdings into cash and a surging dollar killed any vestige of physical demand.

By the end of floor trading on the Comex, the most actively traded gold contract had lost 4.6 percent in what was, according to Reuters, the second worst price drop since 2008.

The day's damage culminated more than three months of declines. An investment that early last month was up 20 percent since Jan. 1 has turned into an investment that is up year-to-date 10 percent.

Once the price of spot gold broke its 200-day moving average of $1,619 -- its first such move since January 2009 -- selling accelerated and sent technical analysts scrambling to calculate the next level of support. Estimates ranged from $1,565 to $1,571.

With yearend fund redemptions looming, managers reportedly sold positions.

Some macro hedge funds are liquidating gold holdings and taking profits in a difficult year. As trading volume typically drops toward year-end, we expect increasingly volatile price swings, James Steel, analyst at HSBC, said in a note.

Besides the hedge fund selling, industrial commodities were broadly lower on the emerging consensus that Europe is in a worsening recession that now threatens the weak U.S. recovery.

Crude oil fell more than five percent to $95 per barrel, copper retreated 4.6 percent, silver plunged 7.4 percent and palladium dropped 6.7 percent.

The macro-economic gloom was accentuated by the Federal Reserve not yet signaling its intent to intervene in the bond market to strengthen the U.S. economic recovery.

That gloom hammered European stocks. The FTSE 100 was off 1.1 percent, Germany's DAX fell 1.7 percent and France's CAC 40 crumbled 3.3 percent. The Eurozone's single currency tumbled to an 11-month low after Italy paid a Eurozone-era record high interest rate to sell a five-year note.

In the U.S. equities were falling, though not as severely. In late afternoon trading, the Dow Jones Industrial Average was down 1.2 percent, the Nasdaq Composite fell 1.6 percent and the S&P 500 gave up 1.1 percent.

The dollar was up against a basket of major currencies, adding to gold's challenges.

Comex gold fell $76.20 to $1,586.90, while spot gold fell $44.70 to $1,587.03.

Comex silver gave up $2.33 to $28.94, while spot silver fell $1.54 to $29.28.