The price of gold has tumbled nearly three per cent to more than $200 below Tuesday's record highs after the Chicago Metals Exchange Group hiked trading margins in the metal for a second time this month.
Investment appetite for gold has cooled ahead of a widely awaited US central bankers' meeting at Jackson Hole, Wyoming, as speculation grows over whether or not the US Federal Reserve will signal a further round of monetary easing.
More quantitative easing - or money printing - from the Fed could significantly lift gold, but it could have further to correct if no additional action is signalled.
Spot gold was down 1.6 per cent at $1,722.50 an ounce at 1351 GMT in volatile trade, having earlier touched a low of $1,702.44.
Investors cashed in on gold's latest rally after the yellow metal surged nearly 20 per cent in the first half of this month to record highs at $1,911.46 an ounce.
Spot prices fell 4.3 per cent yesterday, their biggest one-day drop since December 2008, after US durable goods data beat expectations. US gold futures also posted their sharpest slide since 1980.
"Gold seemed to be running ahead of where equity markets were pointing to in terms of downside risks - those markets were stable and gold kept wanting to push higher and higher," said Macquarie analyst Hayden Atkins.
"Once we got an upside surprise in data, we saw some of those longs washed out."
Any recovery from these lows will be dependent on what happens in the next few days. "It's not really clear what the Fed's intentions are," said Atkins. "People are waiting and watching."
Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust , declined by more than 27 tonnes on Wednesday, their biggest one-day outflow since Jan. 25.
They have dropped nearly 60 tonnes this week, worth around $3.25bn at today's prices.
Gold's losses were exacerbated late on Wednesday after the CME Group, the world's largest commodities exchange, raised margins on gold futures by about 27 percent, the biggest hike in more than 2-1/2 years and the second increase in a month.
But the metal's overall uptrend, which has seen it climb more than 20 percent this year, is still intact, analysts said.
"To be convinced you'd seen the top of the market you would have to see more signs of the issues that had lifted gold being resolved, such as the euro zone crisis, and U.S. growth coming back," said Mitsubishi analyst Matthew Turner.