Tax-related selling helped extend sharp losses in , which plunged 3.3 percent to settle at a more than 3-year low.
February gold futures settled at $1,193.60, the lowest close since August 3, 2010. Gold had risen ahead of the Federal Reserve's decision Wednesday to start tapering its $85 billion bond buying program by $10 billion next month, but has been selling off since the central bank's announcement.
Traders say gold's significant break below the key $1200 level now means it is testing a range between $1200 and $1180, an intraday low from June.
"You look at the scale of tapering, and I'm not sure it quite justifies this level of selloff in gold," said Jim Steel, HSBC chief commodities analyst. "It's the effect it's had on the euro and specifically dollar/euro which is translating into losses for gold."
Some traders say investors have also been selling gold ETFs, like the SPDR Gold Shares Trust (GLD) so they can realize losses, to offset capital gains from a buoyant stock market. GLD was down 1.8 percent Thursday in active trading, and is off 28 percent for the year. The S&P 500, meanwhile is up more than 26 percent for the year.
GLD's peak was $185.85 in September 2011. According to Index Universe, its assets this week were less than $33 billion, from $78 billion in 2011.
(Read more: Gold's taper tantrum takes it to six-month low)
"You're seeing massive ETF selling. I think what's happening with a lot of people, with equities at all-time highs, they have losses in gold," said Kevin Grady, president of Phoenix Futures and Options. "We're seeing some physical buying around these levels. But the ETF selling is offsetting that."
Traders are watching the $1,180 level, the June low. "I think gold needs to test $1,150 if it breaks the $1,180 level. There should be some technical selling. You could have a short-covering rally," Grady said.
George Gero, an RBC strategist, said he is watching to see if gold can hold in the $1,180 to $1,200 zone. February futures fell 3.2 percent to $1,195 an ounce.
"All the negatives came together at the wrong time for gold," Gero said. "And we may not see the effects of inflation until next year. … We'll see if there will be a wage spiral."
(Read more: Fed taper - a nail in gold's coffin?)
He said there should also be demand for building materials in parts of the world hit by storms and tsunamis. "It may become more interesting next year, and higher interest rates may add to the cost of doing business for corporations, and all of that could be inflationary, and that inflationary environment is what really attracts gold buyers, not just the stock market hedges," he said.
Steel said he expects an increase in demand from emerging markets. He said Indian buyers are sidelined by regulations and tariffs, but there should be stronger buying from China, the Philippines, Indonesia and the Middle East.
"I think the market is going to get very attractive for price-sensitive buyers," said Steel. "I think it's overdone, but that isn't to say it's not got much more to go."
He pointed, however, to silver and palladium, noting the smaller declines in those metals may be a sign the selling is coming to an end. Silver is off 1.4 percent this week, compared with the 2.4 percent decline in gold.
Steel also said the move out of gold and commodities and into equities has been a weight. "There's definitely been a rotation and that has been a factor all year," he said.
(Read more: Goldman predicts steep losses for gold in 2014)
—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.