Gold slid more than 3 percent on Tuesday to its lowest since Britain's shock vote to leave the European Union in June, as a bounce in the dollar after upbeat U.S. data triggered a break of key support at $1,300 an ounce.
"Just the better risk appetite in the market this week as Deutsche Bank seems to have stabilized for the moment," said Jim Wyckoff,senior analyst at Kitco Metals. "We've done some technical damage today near-term to suggest we're going to trade sideways to lower."
Forecast-beating U.S. manufacturing data on Monday stoked expectations that the Federal Reserve will lift interest rates.
A break of support at $1,300, which had arrested the metal's August decline, led to a flurry of selling that took prices to a three-month low of $1,288.26 an ounce, a level not seen since June 24 in the immediate aftermath of the U.K.'s Brexit vote.
Spot gold was down about 3 percent at $1,271.16 an ounce. Gold futures for December delivery settled down about 3 percent, or $43 at $1,269.70 per ounce.
Gold futures intraday
Source: FactSet
The move was caused by "continued dollar strength, and traders looking for stops below such a big level," Saxo Bank's head of commodity research Ole Hansen said. "You can argue that considering the importance of the level, the weakness seen so far has been relatively modest."
Gold had traded between $1,300 and $1,350 for the last six weeks. Traders are now turning their attention to U.S. payrolls data for September, due at the end of the week.
While Monday's data showing U.S. factories ramped up activity in September fueled speculation that the Fed would lift rates at its December meeting, officials remain cautious. The U.S. central bank would probably not be able to cut interest rates as aggressively as the last time around if it were faced with a recession in the next few years, New York Fed President William Dudley said on Monday.
Chinese markets being shut for the Chinese National Day holidays from Oct. 1-9 kept a lid on physical gold demand.
A drop in prices may spark some more interest from physical gold buyers, Afshin Nabavi, head of trading at MKS, said. "The physical guys are looking for lower numbers," he said. "Between now and February is the time for the physical market to get busy."
Silver was down 2 percent at $18.35 an ounce. Platinum was down 0.9 percent at $995 an ounce, off an earlier three-month low of $991, while palladium was down 1 percent at $704.50 an ounce.
Spot prices have now wiped out all of last month's slim gains.
Traders remain on the sidelines ahead of U.S. payrolls data for September, due at the end of the week, and other key events later in the year. "We've got the non-farm payrolls data on Friday, so a lot of people will be cautious ahead of that," Afshin Nabavi, head of trading at MKS in Switzerland, said. "The market is generally a bit disappointed with gold. Whatever happens, we just don't seem to be able to get above $1,350."
"I guess everyone is waiting for the U.S. election (in November), and then we'll see what happens in December with the rate hike."
While Monday's data showing U.S. factories ramped up activity in September fueled speculation that the Fed would lift rates at its December meeting, officials remain cautious. The Fed would probably not be able to cut interest rates as aggressively as the last time around if it were faced with a U.S. recession in the next few years, New York Fed President William Dudley said on Monday.
Gold priced in sterling outperformed spot to rise 0.4 percent on Tuesday as the pound slid to a 31-year low versus a currency basket, as worries over the impact of Britain's departure from the European Union rattled the market.
Chinese markets being shut for the Chinese National Day holidays from Oct. 1-9 kept a lid on physical gold demand.
"It would appear that weaker physical demand has put the brakes on the rise in gold prices," Commerzbank said in a note.
Silver was up 0.2 percent at $18.77 an ounce. Platinum was up 0.31 percent at $1,006.60 an ounce, off an earlier three-month low of $996.95, while palladium was down 0.04 percent at $711.20 an ounce.
—CNBC contributed to this report.