NEW YORK Gold fell nearly 2 percent to two-month lows on Thursday due to technical selling and as worries over further monetary tightening in China triggered a commodities rout.
Silver, which sharply outperformed gold last year, dropped almost 4 percent for its biggest one-day decline in 1-1/2 months, sending the closely watched gold-to-silver ratio to its highest in nearly two months.
Gold, which rose 30 percent last year, has fallen 5 percent this month as investors took profits and put more cash into assets such as equities and industrial commodities.
"In the short term, some of the flood into the gold from the European crisis has subsided somewhat. We are poised for a decent-size correction here in all risk markets, and gold is getting caught up in that," said James Dailey, portfolio manager of the Team Asset Strategy Fund TEAMX.O.
The Reuters-Jefferies CRB index .CRB, a commodities benchmark, looked set for its largest one-day loss in over two weeks, led by 2 percent drops in oil and copper on fears that strong growth in China could prompt more monetary tightening.
Spot gold fell as low as $1,342.65 an ounce, its weakest since November 19. It slipped 1.4 percent to $1,350.90 by 2:15 p.m. EST. U.S. gold futures for February delivery settled down $23.70 at $1,346.50.
Turnover in the U.S. futures market was stronger than usual. COMEX gold totaled 260,000 lots, up two-thirds from the 30-day average, and volume in COMEX silver was about 50 percent higher, preliminary Reuters data showed.
Worries that Chinese tightening could derail global economic recovery sparked losses in stock markets too, with equities falling on both sides of the Atlantic.
Analysts also cited weaker demand at gold-backed exchange traded funds as a factor behind the metal's weakness.
Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, continued to decline, falling to 1,251.433 tonnes on January 19 -- its lowest since May 2010. Its holdings are down more than 29 tonnes so far this year.
Gold came under further pressure after the dollar rose as better-than-expected housing and employment data pointed to an improving U.S. economy, though hopes for an easing in Europe's debt crisis limited euro selling.
On technical charts, a new downward trend could be forming for the U.S. February gold contract after prices broke below their 100-day average to hit a two-month low on Thursday.
"For the past few weeks, we are seeing a series of lower highs and lower lows forming on the charts. Technically, this suggests a new downward trend is forming," said Adam Sarhan, chief executive of New York-based Sarhan Capital.
SILVER SLIDES 4 PERCENT
Silver, which rose more than 80 percent in price last year due largely to continuous investment, came under pressure following another outflow of metal from top silver ETF iShares Silver Trust.
Silver dropped 3.9 percent to $27.66 an ounce and has fallen around 11 percent so far this month, putting it on track for its largest monthly decline since June 2009.
The prospect of tighter monetary policy in China, the top consumer of many industrial commodities, also hit the metal, which has a far greater industrial demand base than gold.
The gold-to-silver ratio -- the number of ounces of silver needed to buy an ounce of gold -- rose to a near two-month high at just below 49, showing that silver is underperforming gold in a falling market.
Platinum fell after two consecutive days of gains that took the price to its highest since July 2008. It lost 0.9 percent to $1,815 an ounce, while palladium inched up 0.2 percent to $813.22.