Gold futures tumbled more than 7% Tuesday to tally a six-session loss of almost $83 an ounce as crude prices fell to a two-month low and the dollar continued to strengthen on expectations U.S. interest rates are headed higher – sapping demand for the precious metal

"Gold now stands at a point where the $300 move it had achieved over the past year has been reversed by 50%, and questions are being raised about its ability to sustain much more damage before the bull cycle is declared as being on a permanent summer vacation," said Jon Nadler, an investment products analyst at bullion dealers Kitco.com.

Gold for August delivery traded as low as $565.50 an ounce on the New York Mercantile Exchange before closing at $566.80, down $44.50, or 7.3%, for the session – intraday and closing levels it hasn't seen since March 23.

The contract has now dropped almost $82, or 12.6%, in value since the June 5 closing level of $648.70.

"Gold will ... have to await (patiently) the return – in earnest – of its formerly loyal physical buyers before one can declare this correction over and not start calling it a bear market," said Nadler, adding that he sees no signs yet that this reversal of sentiment has taken hold.

The decline in the metal Tuesday came as the dollar strengthened to more than six-week highs versus the euro and Japan's yen Tuesday. Growing market convictions the Federal Reserve will lift interest rates at the end of this month supported the greenback.

"The gold market is apparently still concerned about slowing U.S. growth and is mostly expecting the U.S. to raise interest rates again in the June FOMC meeting," Nell Sloane, an analyst at NSFutures.com, said in daily commentary.

And "with a long list of Fed members expressing concern for inflation [Monday], it is clear that the market is fearful of the 'treatment' for inflation, instead of being supported by the news that inflation is still very much a consideration at the Fed," she said.
Opportunity knocks?

Despite the severe losses Tuesday, Peter Grandich, editor of the Grandich Letter, said he believes "the current correction is going to end up [as] the last great buying opportunity in what ... remains the greatest secular bull market in gold's history."

He points out that the risk in gold prices is $25-$50 lower ,while the reward is $200-$500 to the upside.

Overall, "the mindset right now is that gold is not quite through consolidating and so many traders burned by the recent moves in the yellow metal will stand aside and let the bloodletting finish," said Kevin Kerr, editor of Global Resources Trader, a newsletter of MarketWatch, the publisher of this report.

The market needs to experience a "rallying level event" that would persuade short sellers to cover their positions and re-energize the rest of the market, said Kerr. Such an event could be a worsening of relations with Iran, such as a complete breakdown of talks on its nuclear research, or an actual terror attack as retaliation for the death last week of Abu Musab al-Zarqawi, the leader of al-Qaida in Iraq, he said.

But "the ultimate factor is what the Fed does," at its meeting on June 29, he said. "If they do raise rates then much of that will be factored in already. If they don't end up raising rates, things could turn around fast and really throw the market for a loop," he said.
Battle wounds

Gold has now fallen about 22% from its May peak above $730, pulling other metals with it.

Silver was the biggest decliner Tuesday, with its July contract dropping $1.44, or 13%, to close at $9.625 an ounce after a low of $9.60, a level it hasn't seen since Feb. 23.

The plummeting silver price has "nothing to do with a bubble or related driver," according to Paul Mladjenovic, a silver analyst at PM Financial Services in Hoboken, N.J. "There are some very large traders [who are] massively shorting silver, causing an artificial plunge in the silver price," he said, adding that "the situation is great need of scrutiny and enforcement by the CFTC [Commodity Futures Trading Commission]."

Palladium was also a big decliner, with its September contract down $39.05, or 12.4%, to end at $276.70 an ounce. It touched $274.10 earlier, its lowest level since January. Sister metal platinum saw its July contract fall $52.90, or 4.5%, to close at $1,118.50 an ounce after a seven-week low of $1,117.50.

Despite the recent selling pressure, both platinum and palladium are "expected to find good scaled down buying interest with support in platinum pegged at $1,120/$1,100," said James Moore, an analyst at TheBullionDesk.com. "Palladium should look to spend some time in the $275-$295 range," he said in a note to clients.

July copper also tapped a low of $3 a pound, its weakest level since April 21. It closed down 21.8 cents, or 6.8%, at $3.0105. Risk in the base metals "remains to the downside amid concerns over the macroeconomic front (slowing growth/higher inflation) and we recommend standing aside until the outlook is more certain," John Reade, an analyst at UBS wrote in a research note Tuesday.

The sharp move in metals has unsettled many of the fund managers who had rushed into commodities during its steep bull run earlier this year, seeking better returns than were then available on other asset classes, like stocks and bonds.

"The institutional love affair with commodities as an alternative investment class seems to be coming to an end," said John Clemmow, analyst at Investec Securities.

Peter Scales, chief executive of the London Fund Authority said his fund is looking more closely at commodities and conferring with its advisors before investing, said Clemmow.

And the head of France's state pension fund Christophe Aubin has concurred, according to Investec, saying his fund would delay investments if prices remain too high over the next few months.

On the supply side, gold inventories were unchanged at 7.79 million troy ounces as of last Monday, according to data from the New York Mercantile Exchange.

Silver supplies fell by 1.5 million troy ounces to 103.9 million. Copper supplies fell by 88 short tons to 8,842 short tons.