Gold and U.S. stocks rebounded on Tuesday as the previous session's sell-off lured buyers into the market but demand concerns sent oil below $100 a barrel for the first time in nine months.
The broad rout in commodities and stocks seen in recent sessions was triggered by weak data from China and the United States that have sparked fresh concerns about the strength of the global economy's recovery.
Gold has fallen about 20 percent so far this year after an unbroken 12 years of gains and is down some 28 percent from the record high hit in September 2011 of $1,920.30 an ounce.
Spot gold lost more than 8 percent on Monday alone and had dropped further, to $1,321.35, earlier on Tuesday before reversing direction to be up 2.6 percent at $1,387.76.
Analysts have cited various reasons for gold's latest slump, including funds switching out of bullion and the possibility that other central banks in Europe could use Cyprus's bailout plans to sell excess gold reserves as a reason to sell some of their own holdings.
Stocks on Wall Street also recovered some ground to rise nearly 1 percent by late morning, helped in part by a drop in U.S. consumer prices last month that left room for the Federal Reserve to keep up its economic stimulus efforts.
Separate data showed U.S. factory output declined in March, while permits for future housing construction tumbled. Data at the start of the year had been generally upbeat, pointing to an acceleration in economic growth in the first quarter, but recent reports have suggested the recovery hit a soft patch heading into the spring.
Oil continued to languish, with Brent crude falling below $100 a barrel for the first time in nine months as concerns persisted over the outlook for demand.
Brent crude was down $1.73 at $98.90, while U.S. crude lost 95 cents to $87.76.
NEW YORK Gold had its biggest one-day drop since 1983 on Monday as a selling frenzy that began last week picked up speed.
The price of gold plunged $140.30 to $1,361.10 an ounce, a decline of 9 percent. The metal has dropped $200 an ounce, or nearly 13 percent, in the last two trading days. It's the lowest price since February 2011.
The sell-off started Friday when the government reported a drop in inflation. Investors often buy gold when they're fearful of rising prices and sell it when they see inflation ebbing.
A proposal last week that Cyprus sell some of its gold reserves to support its banks also spooked investors, leading them to worry that Spain, Italy and other weak European countries might flood the market just as demand for the metal is weakening.
After the sharp drop last week, the rush of selling started to feed on itself Monday as worried traders hurried to get out of the market. "This is panic, this it isn't organized at all," said Phil Streible, a senior commodities broker at RJ O'Brien Futures. Worries about slowing growth in China also pushed down industrial metals and the price of oil and other commodities.
Gold is often thought of as a safe-haven investment, a place to park money when investors are fearful of turmoil in other markets, inflation, weak economic growth or depreciation in the value of the U.S. dollar.
It rose sharply in the past decade, from less than $330 ten years ago to a peak of $1,900 an ounce in August 2011 during the market turmoil that followed a downgrade of the U.S. government's credit rating.
Part of the rise in recent years can be attributed to more investors putting money into gold and speculating that the price will continue to rise.
Some investors also bought gold as an alternative to holding dollars on the belief that the Federal Reserve's economic stimulus program would weaken the U.S. currency.
George Gero, precious metals strategist at RBC Capital Markets, said the possibility of European central banks selling gold was especially worrisome since there were fewer nations interested in keeping gold reserves these days.
"There aren't many other countries that want to buy," Gero said.
"In the past you saw Mexico, Russia, China, Turkey and other central banks buying gold, but right now there seems to be more of a need for dollars."
Gold has been declining from a recent high of $1,792 on Oct. 4 as the outlook for the U.S. economy improved, diminishing the metal's appeal as a safe haven investment.