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The Great Gold Rush ... for the Exits

Gold, which plunged Tuesday to its lowest level in a month, could see a deeper decline that may cause the precious metal to revisit the year's low, a veteran trader told CNBC "Futures Now."

Rich Ilczyszyn, founder and chief market strategist at iiTrader, said that bullion's close below $1,700 sent a bearish near-term signal.

Yet the news gets worse for gold bulls. According to the trader, gold could see an even sharper drop. The tense negotiations in Washington over the "fiscal cliff" could send investors fleeing for other perceived safe havens, he said.

"If we do go off the fiscal cliff, we could actually see a sharp selloff in gold as people run out of everything, which they've done in the past, and go into the dollar and Treasurys short-term," Ilczyszyn said. "We could drop another couple of hundred bucks potentially in gold, back to that year's low of $1,530."

The precious metal has surged in the wake of massive bond-buying from the Federal Reserve, which critics say will eventually spark a precipitous rise in inflation and a drop in the dollar. Gold is used as both a hedge against inflation, and a haven from uncertainty. (Read More: Think Gold's Pricey Now? Wait Until It Hits $5000: Schiff.)

Yet investors have scattered amid political wrangling between the White House and Congress over looming tax hikes and spending cuts that are set to take place in January. Mass liquidation from large funds sent to drop past $1,700 on Tuesday, a key technical and psychological barrier watched by many analysts.

Traders said that heavy selling from global macro funds,options activity and year-end tax selling – some related to the looming hike on dividend taxes associated with the fiscal cliff – helped to weaken demand for bullion.

– Sharon Epperson contributed reporting to this article.

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