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Look out below if gold fails this technical test

Tax-related selling helped extend sharp losses in gold, 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."