• Spot gold plunged 2% to $4,523.15 per ounce, marking its sharpest daily drop in three weeks.
  • The selloff was driven by a strengthening US dollar and expectations that the Federal Reserve will hold rates higher for longer.
  • Analysts warn of further downside if key support at $4,500 breaks, but geopolitical risks could limit losses.

Gold's Sudden Slide

Gold prices extended their decline in afternoon trading on Wednesday, falling roughly 2% to around $4,523 an ounce, according to market participants. The drop accelerated after the release of stronger-than-expected US services sector data, which bolstered the dollar and Treasury yields.

"We're seeing a classic risk-off rotation within safe havens," a London-based precious metals trader said. "The dollar is king right now, and gold is paying the price." The US dollar index climbed 0.6% to 104.7, its highest level in a month.

The move caught some investors off guard after gold had rallied nearly 15% year-to-date. "The market got ahead of itself," said a portfolio manager at a Swiss asset manager. "We're due for a correction, but the catalysts are aligning now."

What's Behind the Rout

Federal Reserve Chairman Jerome Powell's comments on Tuesday that the central bank is "not in a hurry" to cut rates have reverberated through commodities. Futures markets now price in just two quarter-point cuts by December, down from three earlier this month. Higher rates lift the opportunity cost of holding non-yielding gold.

Additionally, equity markets have stabilized, reducing demand for gold as a hedge. The S&P 500 rose 0.3% on Wednesday, while bitcoin jumped 4%, drawing speculative flows away from bullion.

Technical and Fundamental Outlook

Gold is now testing its 50-day moving average near $4,500. A close below that level could open the door to $4,400, analysts at a major investment bank said in a note. However, they cautioned that physical buying from central banks and Chinese consumers might provide a floor.

A precious metals strategist at a European bank noted that the selloff is "overdone" in the short term. "We still see strong support from reserve diversification by central banks," he said. "But momentum is clearly negative at this point."

Looking Ahead

Traders are now focused on the US nonfarm payrolls report on Friday, which could determine the next leg for gold. A hot number would reinforce the higher-for-rates narrative, while a miss might spark a relief rally. Several bullion banks reported active hedging by miners and jewelers during the decline.

Correction: An earlier version of this article misstated the percentage decline. Gold fell 2.0%, not 2.5%.