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Gold tumbles 1.7%, lowest since mid-July

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Gold settled at its lowest level since mid-July on Tuesday, breaking through key support at August lows as the dollar hit a one-year high against the euro ahead of a European Central Bank meeting this week.

In the 10 minutes between 6:30-6:40 am EDT, gold's losses snowballed, with more than 10,000 lots—or one-third of the volume at the time—changing hands after the yellow metal fell below key technical support at $1,275 an ounce and the Aug. 21 low at $1,273.06, traders said.

U.S. gold futures settled $22.40 lower, or 1.7 percent, at $1,265.00 an ounce—its worst day since July 14. Spot gold, meanwhile, plunged 1.8 percent to $1,265 an ounce.

Speculation that the European Central Bank will do more to help a wobbly euro zone economy, combined with data showing encouraging U.S. manufacturing activities and construction spending, boosted the U.S. currency against the euro.

Symbol
Name
Price
 
Change
%Change
Volume
GOLD
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GOLD/USD
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SILV/USD
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SILVER
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PALL/USD
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PLAT/USD
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"It's when the dollar hits big numbers that gold gets punished and this is clearly one of those moments," Ross Norman, chief executive of bullion broker Sharps Pixley, said.

"There is a lot to be concerned about on the political and economic front (but) people tend to get inured to the idea of bad news and it doesn't affect them anymore."

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The euro sank to a one-year low against the dollar on bets of more monetary stimulus by the ECB when it holds policy meeting on Thursday.

"The very strong dollar is definitely taking a toll on commodities, more than offsetting geopolitical tensions," said Bill O'Neill, partner at New Jersey-based commodities investment firm LOGIC Advisors.

—By Reuters with CNBC