The gold price has plunged by 2.85 per cent to $1,203.97 per ounce, its biggest single-session point drop in almost a year, after rallying earlier in the day to $1,213.95.
Investors had thought the commodity's two-day losing streak was at an end given the 0.38 per cent gain in early trading but the turnaround has not lasted.
Decline in the precious metal's price was foreshadowed by Goldman Sachs analysts, who said in a recent note: "This past week fears over oil and China were augmented with fears over negative interest rates and the potential for systemic risks from banks. These fears created a surge in gold, the barometer of fear, towards $1,300 an ounce. However, we believe that these fears ignore the facts that systemic risks from oil, China and negative rates are very unlikely.
"As we maintain our view of rising U.S. rates and hence lower gold prices with a 3-month target of $1,100 an ounce and 12-month target of $1,000 an ounce, we are recommending shorting gold."
Gold has gained over 10 per cent this year as worries over negative interest rates and their impact on the banking sector pushed investors to seek what is usually seen as a safer alternative to stocks.
Meanwhile, there is also pressure coming from falling expectations for the number of interest rate rises from the US Federal Reserve this year. The prospect of higher US rates was a key factor driving gold prices losing 10 per cent last year.
"It's really all about confidence here - confidence in the Fed, confidence in the PBOC, confidence in the ability of financial markets generally to withstand the kind of stress that they're under," ICBC Standard Bank analyst Tom Kendall said.
"To get gold to make sustainable gains above $1,250 and up towards $1,300, you do need that sense of fear and concern more widely to be sustained, and for assets like equities to come under even more stress."