Gold Prices Drop 1.5% on Greece Referendum Surprise

Gold prices fell 1.5 percent Tuesday as Chinese manufacturing slowed more than expected and Greece blindsided markets with plans for a referendum on whether to accept another bailout.

Both developments stunned investors who fled to the dollar, raising it more than 1.3 percent against a basket of major currencies -- and against its chief safe-haven rival, gold.

Manufacturing in the world's second-largest economy - a major buyer of European and U.S. goods and services -- dropped unexpectedly to its lowest level since February 2009, according to Chinese officials.

Meanwhile, Greece's prime minister, who holds a three-seat majority in the legislature - stunned markets by saying he will hold a referendum in January on whether to accept the European Union's latest bailout offer of $180 billion. The offer, Europe's second for the ailing nation, comes with further demands for austerity, earlier versions of which have sparked riots.

Coming just hours after a major U.S. broker-dealer filed for bankruptcy because its $6.3 billion investment in the sovereign debt of Italy, Spain and Portugal collapsed, the two overnight developments pummeled stocks.

In Asia the Hang Seng fell 2.5 percent and in Europe, France's DAX plummeted 4.9 percent. In the U.S., futures for the Dow Jones Industrial Average, the Nasdaq 100 and the S&P 500 all pointed to a lower open.

The gold price wasn't finding much support in the physical market.

Global physical demand has been slack overall as buyers wait for more attractive levels, said UBS analyst Edel Tully.

Gold for December delivery on the Comex fell dropped $21.30 to $1,703.90, while gold for immediate delivery fell $18.34 to $1,694.93.

Silver for December delivery was off $1.03 to $33.32, while silver for immediate delivery fell $1.22 to $33.01.