Gold plunged $77 per ounce Wednesday, the biggest one-day drop since September, as traders dialed back their expectations that the dollar would be weakened by another round of economic stimulus from the Federal Reserve.
Gold for April delivery settled at $1,711.30 an ounce, its lowest close since Jan. 25. May silver also fell sharply, giving up $2.563 an ounce, or 6.9 percent, to settle at $34.642 an ounce.
Both metals fell after Federal Reserve Chairman Ben Bernanke gave no hint in testimony before Congress that the central bank was planning more bond purchases.
Bernanke also said the economy was better than the Fed had expected and that inflation was subdued, suggesting that the Fed might back off its pledge to keep interest rates low through 2014.
The dollar soared and precious metals plunged after Bernanke's remarks. Investors tend to buy the metals as insurance against a weak dollar and against inflation. Bernanke's remarks suggested that both of those scenarios were unlikely.
Gold and silver have been climbing sharply this year after the Fed indicated in January that it was likely to keep interest rates low for another two years, implying that the dollar would remain weak. Gold is still up 8 percent this year, silver 24 percent.
Jon Nadler, senior analyst at Kitco Metals Inc. in Montreal, said that surge was overdone. "They got carried away," he said.
Nadler noted that there were no threats to precious metals supplies or increases in consumer demand to justify the huge advance, which he said was likely being driven by short-term speculative traders.
If anything, demand from individuals for gold appears to be waning, Nadler said. The U.S. Mint, for example, reported that sales of gold coins plunged to 21,000 ounces in February from 127,000 ounces in January. For all of 2011, the monthly average was 83,333 ounces, according to the U.S. Mint's web site.
Prices for other metals also fell, though not as sharply. May copper fell 4.2 cents to $3.8795 a pound; April platinum fell $30.90 to $1,692.60 an ounce and June palladium fell $13.80 to $708.40 an ounce.
Agricultural commodities mostly rose. In May contracts, corn edged up 0.75 cent to $6.58 a bushel, soybeans rose 7.5 cents to $13.20 a bushel, and wheat fell 0.25 cent to $6.68 per bushel.
Prices for energy contracts mostly rose.
Crude oil rose 52 cents to settle at $107.07 a barrel on the New York Mercantile Exchange. Gasoline futures rose 3.25 cents to $3.2572 a gallon. Gasoline is still down nearly 2 percent this week but it's on track to finish February with a gain of 13 percent.
In other energy trading, natural gas futures rose 8.3 cents to $2.71 per 1,000 cubic feet. Heating oil fell 1.42 cents to $3.2059 a gallon.