Gold futures on the COMEX Division of the New York Mercantile Exchange fell below the 1,600-dollar mark on Wednesday, as the euro hovered near its lowest levels of the year, rekindling fears of a liquidity crunch in Europe. The price drop was also dented by year-end profit-taking.

The most active gold contract for February delivery lost 76.2 dollars, or 4.6 percent, to 1,586.9 dollars per ounce.

The euro plunged to 11-month low against U.S. dollar on Wednesday, as borrowing costs in Italy, eurozone's third-largest economy, rose to a euro-era record high, stoking fears that Europe will be forced to rescue Italy and Spain from a lending boycott by international investors.

Although gold is usually considered as a safe-haven in times of geopolitical and financial market instability, said a trader, investors still worry that Europe's problems will trigger a cash crunch similar to the one seen three years ago.

Therefore, gold prices were in free fall earlier in the session, losing more than 100 dollars before recovering a little bit after a major crash in equity and commodities prices. Some investors who have faced margin calls on other assets were forced to sell gold to cover those losses.

Meanwhile, the greenback benefited from "flight to cash" scenario as commodities were down, further decreasing gold's appeal as an alternative asset, as stronger dollar makes dollar- denominated gold pricier to investors holding other currencies.

"Gold remained under pressure as global investors are liquidating gold positions in favor of the U.S dollar as their latest currency of choice," said Mike Daly, a gold specialist with PFGbest in Chicago.

A trader noted that gold has lost nearly 30 dollars late Tuesday, after U.S. Federal Reserve announced that it will keep U. S. interest rate unchanged and to avoid new monetary-stimulus programs.

Meanwhile, the bullion also came under huge pressure, as some large hedge funds were liquidating gold positions and taking profits at the end of a bad year, with some gold buyers having been reluctant to buy during times of huge daily price swings.

Silver and platinum both crashed. Silver for March delivery plunged 2.325 dollars, or 7.4 percent, to 28.935 dollars per ounce. Platinum for January delivery dropped 66 dollars, or 4.4 percent, to 1,426.3 dollars per ounce.

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