DECEMBER 14, 2011, 4:03 P.M. ET.

Gold Slides 4.6% to Below $1,600 .

By LAURA MANDARO And V. PHANI KUMAR

Gold futures skidded nearly 5%, sinking below the $1,600 level for the first time in nearly three months, as a drop in the euro signaled a new level of anxiety about the region's debt crisis and investors sought cash as the safest asset.

The decline blew the yellow metal past some long-held technical levels, which then exacerbated the selloff. Silver futures, which often shadow gold's moves, closed down 7%, copper lost nearly 5% and palladium sank almost 7%.

Gold for February delivery settled down $76.20 an ounce, or 4.6%, to $1,586.90 on the Comex division of the New York Mercantile Exchange, the lowest settlement for a most-active contract since mid-July. It was the first time gold had lost grip on $1,600 since late September.

"Markets are realizing that the global economy is, in fact, slowing and certainly Europe is in a recession," said Bart Melek, senior commodity strategist with TD Securities. "There doesn't seem to be any type of a solution coming from Europe any time soon and whatever measures they've taken so far haven't convinced the market that credit risk isn't going to continue rising."

The day's closing loss, also the worst since late September, wasn't as deep as it could have been as futures recovered from an intrasession decline. February gold had fallen as low as $1,565.70 an ounce, representing a $97.40 drop for the day.

A combination of factors sent gold prices lower, with concerns over Europe at the forefront. The euro dropped below the $1.30 level, down more than 1%, after Italy had to pay a euro-era-high yield to sell 5-year bonds. But in contrast to long stretches of the past two years, investors have been choosing dollar-denominated cash over gold in recent weeks.

"It's the never-ending European debt crisis still playing out, combined with some year-end profit-taking and a weakening of the euro," said Jeff Wright, metals and mining analyst at Global Hunter Securities. "A number of funds are rotating into money-market funds in the U.S. It's safe and they don't have volatility."

Gold's decline early in the session sent the contract below a 200-day moving average of around $1,619 an ounce, its first break below this level since January 2009. The drop deepened from there, pushing the contract below $1,600.

"People tend to concentrate their sell stops around these [technical] levels," Mr. Melek said, adding that the "next stop is $1,560."

A break below the 200-day average usually marks the start of a bear market, said Jon Nadler, senior metals analyst at Kitco Metals Inc. North America.

Gold's move below $1,600 comes as traders are squaring their positions ahead of the year-end, and many are moving to the sidelines in the weeks before the holiday season.

"This is more than a major correction, it's a fundamental shift in assets by money managers who are going to wait until the beginning of the new year to reassess anything other than cash," said George Gero, senior vice president with RBC Capital Markets Global Futures. "Money managers are going to husband cash until the dust clears."

—Tatyana Shumsky contributed to this article.
Write to Laura Mandaro at laura.mandaro@dowjones.com and V. Phani Kumar at phani.kumar@dowjones.com

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