Gold Plunges 3% on Fears of Spreading Eurozone Crisis

Gold plunged three percent Thursday, its fourth consecutive daily drop, after ratings agency Fitch warned that U.S. banks are dangerously exposed to contagion from the spreading Eurozone sovereign debt crisis.

Even though U.S. banks have been cutting their direct exposure to the continent's stressed markets like Spain and Italy for more than a year, Fitch's warning underscores how spreading contagion from Europe's sovereign debt crisis increasingly threatens U.S. banks holding the debt of France and other large European countries.

Fitch believes that, unless the Eurozone debt crisis is resolved in a timely and orderly manner, the broad outlook for U.S. banks will darken, it said in a report. The risks of a negative shock are rising and could alter Fitch's stable rating outlook for U.S. banks.

U.S. stocks posted heavy losses, with both the Nasdaq Composite and the S&P 500 tumbling more than two percent.

The breach of a key technical support level accelerated gold selling.

$1,776 was the 61.8 percent Fibonacci level retracement from the Sept. 6 high to the Sept. 26 low, but we couldn't hold it for more than a week, said Timothy Kelly, managing director of IBTrade. The next test is going to be the $1,704 level. But if we bust through that $1,704 level -- with conviction -- and get under $1,700 there's not much support until you fall to $1,683.

Gold for December delivery on the Comex fell $54.10 to $1,720.20, while spot gold fell $46.83 to $1,718.93.

Silver for December delivery on the Comex dropped $2.35 to $31.50, while spot silver fell $2.30 to $31.47.