Gold sustained one of its biggest routs since the 2008 economic crisis Thursday, plunging 6 percent to $1,286 and ounce in broad cross-asset selling a day after the Federal Reserve gave its most explicit signal yet that it plans to bring the era of easy money to an end.
After breaking below a key recent low at $1,320 an ounce, bullion's losses accelerated to their lowest level in nearly three years. The metal's decline, its biggest one-day drop since its mid-April meltdown, is also dragging the entire commodities complex sharply lower.
A surge in interest rates, as reflected in a two-year high in 10-year Treasury bond yields, pummeled gold investments, including exchange-traded funds, after Fed Chairman Ben Bernanke's remarks about possibly scaling back stimulus later this year.
Bullion, a nonyield-bearing asset and a traditional inflation hedge, tends to be particularly sensitive to interest rate changes.
"People had been going into gold, commodities and equities because the bond yields were so low," said Jeffrey Sica, chief investment officer at Sica Wealth, which oversees more than $1 billion in client assets. "Now, with bond yield rising we are beginning to see liquidation out of gold and into cash. It's going to be a bloodbath here on the way down after we broke $1,320."
Spot gold was down 5 percent to $1,280 an ounce, having hit $1,281.40, which marked its lowest level since Oct. 4, 2010.
U.S. gold futures for August delivery settled down $87.80 an ounce at $1,286.20, with trading volume already more than 350,000 lots on what may be the highest daily turnover in nearly a month, according to preliminary Reuters data.
Investment demand also dropped. Bullion holdings in the world's biggest gold exchange-traded fund, SPDR Gold Trust, fell 0.2 percent to their lowest level in four years.