Gold prices dropped to a one-month low on Tuesday, but were well off their lows, as fear of a potential nuclear catastrophe in Japan sent world financial markets tumbling in a flight to safety.
Bullion was caught in a global equity rout that wiped out about $650-billion (U.S.) in valuations as investors dumped assets considered risky and sought the safety of cash or government debt.
Platinum group metals also fell sharply as Japan's deepening nuclear crisis dampened demand expectations due to plant closures and production outages in the country's auto industry.
Total trade in U.S. metals futures rose to the highest level since late January.
"We have a risk-off trade going on as a result of the issues in Japan. There has been institutional liquidation and other liquidation globally as people are choosing to raise cash at this moment," said James Steel, chief commodity analyst at HSBC bank.
Spot gold fell as low as $1,380.90 an ounce and was later down 2.3 per cent at $1,394.10 an ounce by 2:54 p.m. ET, notching its biggest one-day loss in nearly two months.
U.S. gold futures for April delivery settled down 2.3 per cent at $1,392.80 an ounce.
Silver tumbled as much as 6 per cent to a low of $33.56 an ounce, and was last down 4.2 per cent at $34.33 an ounce.
Other safe havens, such as U.S. Treasuries and the Swiss franc, rallied after Japanese stocks posted their worst two-day slide since 1987.
Japan raced to avert a catastrophe on Wednesday after an explosion at a quake-crippled nuclear power complex sent radiation wafting into Tokyo, prompting some people to flee the capital and others to stock up on essential supplies.
"High risk aversion is prompting the taking off of any risk. Even if it doesn't seem logical to move away from gold in the current situation, risk aversion is telling many market participants that cash is king," said Commerzbank analyst Eugen Weinberg.
Bullion was little changed after the U.S. Federal Reserve said the economy was gaining traction while flagging potential inflation risks from costlier energy and food, confirming its ultra-loose monetary policy.
The Fed dedicated an unusually large portion of its policy statement to inflation concerns surrounding a recent spike in energy and food prices, which it said would most likely prove transitory.
LIQUIDITY IS KEY
Analysts said part of the pressure on gold stemmed from investors cashing in on the metal's 8 per cent rise in the past month on escalating violence in the Middle East to cover losses or margin calls on their equity holdings.
"Money is even fleeing gold ... a circumstance we do not find all that shocking as liquidity is now the order of the day," said Dennis Gartman, author of the Gartman Letter, a daily investment newsletter.
Platinum prices shed as much as 3.5 per cent, falling to their lowest level since mid-December at $1,687.99 an ounce. They were later down 2.8 per cent at $1,700.49 an ounce.
Palladium fell as much as 7.5 per cent to $684.50 an ounce, its fifth day of losses and its longest losing streak since early August. It later was down 5.4 per cent at $700.
Major Japanese car makers, including Toyota, Nissan and Honda, stopped vehicle production following Friday's earthquake, which crippled roads, railways and ports. Carmakers are the biggest consumers of platinum and palladium.
According to refiner Johnson Matthey, Japan was the largest single national user of platinum in 2010, and accounted for 18 per cent of global autocatalyst demand of 2.985 million ounces.
COPPER ALSO UNDER PRESSURE
Copper fell Tuesday, but trimmed losses late after the U.S. Federal Reserve said the economic recovery is "on a firmer footing" and conditions in the labor market "appear to be improving gradually."
Copper prices on the London Metal Exchange have fallen more than $1,000 a tonne from the record $10,190, hit last month.
"I guess it stops the bleeding for copper for the time being," said Frank Lesh, broker and futures analyst with Future Path Trading in Chicago.
"We're seeing equity markets perk up after the Fed on the upbeat assessment of the economy, but we're all watching these headlines right now."
Despite the Fed's more upbeat economic assessment, markets would stay focused on Japan's nuclear power crisis and the impact it could have on the global economy.
In after-hours business, LME three-month copper was trading at $9,136 per tonne by 3:17 p.m. ET. It closed kerb trading down $77 at $9,118.
COMEX May copper slipped 4.95 cents per lb to settle at $4.1370, then bounced to trade at $4.1775.