Gold plunged below $1,650 an ounce on Thursday, down more than 1 percent, and to its lowest since August as heavy liquidation by hedge funds and signs of an improving U.S. economy triggered selling.
The metal broke below its 200-day moving average, which it had held for four months, as safe-haven bidding faded following a government report that showed the U.S. economy grew at a faster-than-expected 3.1 percent annual rate in the third quarter.
Silver also dived over 3 percent and platinum group metals each fell around 2 percent.
Also weighing on gold was news Morgan Stanley Smith Barney has recommended its financial advisers pull client money out of long-time gold bull John Paulson's funds. The announcement stirred speculation the billionaire hedge-fund manager might need to liquidate gold investments.
"There is a concern among the hedge funds that they will have more redemptions because of the fact that they underperformed the markets this year as a whole,'' said Jeffrey Sica, chief investment officer of SICA Wealth Management which has over $1 billion in assets.
Spot gold was down 1.1 percent at $1,647.40 an ounce, having hit a low of $1,635.09, which marked the weakest since Aug. 22.
Silver, which often displays higher volatility than gold, was down 3.4 percent to $29.94, having hit a four-month low of $29.60 an ounce.
Bullion has now fallen 3 percent in the last three sessions, partly pressured by uncertainty related to efforts by U.S. legislators to clinch a deal to avert automatic tax hikes and spending on Jan. 1.
Gold has failed to benefit as a safe haven even though a year-end deadline for the "fiscal cliff" looms. On Thursday, Republicans in the U.S. House of Representatives pushed ahead a "fiscal cliff'' plan that stands no chance of becoming law as time runs short to reach a deal with President Barack Obama to avert a Washington-induced economic recession. (Read More: Why Economy Could Slow Even With 'Fiscal Cliff' Deal)
After this week's sharp sell-off, bullion is on track to end the fourth quarter down 7 percent, which would be its worst quarterly performance since the second quarter of 2004.
Options, Technical Outlook Bearish
Heavy concentration of put options under $1,700 an ounce added significant pressure on the underlying gold futures. Many investors have accumulated puts at lower prices to protect their gains in gold futures.
On charts, Thursday's sell-off sent gold's 14-day relative strength index to 25, the area which is considered by most analysts as oversold, for the first time since May.
U.S. gold futures settled down $21.80 at $1,645.90 an ounce, with volume in line with its 30-day average, preliminary Reuters data showed. (Read More: Gold to Hit $2,000 by Year-End on More Fed Easing: Merrill)
Year to date, gold was up around 5 percent. It was up as much as 15 percent earlier this year on worries that monetary easing by the Federal Reserve could spur inflation.