* Rising U.S. bond yields hit gold's appeal
* Scaled back Fed bond buys possible in 2013
* SPDR Gold exchange-traded fund holdings at 4-year low
NEW YORK/LONDON, June 20 - Gold plunged over 5 percent to its lowest in three years on Thursday, leading a global market rout one day after the U.S. Federal Reserve gave its most explicit signal yet it plans to wind down the era of easy money.
Losses snowballed throughout the day, triggering technical selling below key support at $1,320 an ounce and culminating in one of bullion's biggest routs since the 2008 economic crisis. Technical analysts said prices might have to fall another 6 percent before finding new support at $1,200.
Signs of financial stress in China added to the pressure, with China's shortest-term rates hitting record highs as the central bank ignored market pressure to inject funds into the market, despite new evidence that the world's second-largest economy is slowing.
But the primary impetus was Fed chief Ben Bernanke's remarks on a possible scale back of the stimulus program later this year, which spurred a surge in benchmark U.S. bond yields that drove gold deeper into bear market territory. Silver plunged nearly 8 percent. U.S. stocks fell 2.5 percent and oil tumbled 4 percent.
"People had been going into gold, commodities and equities because the bond yields were so low. Now, with bond yield rising we are beginning to see liquidation out of gold and into cash," said Jeffrey Sica, chief investment officer at Sica Wealth which oversees over $1 billion in clients' assets.
Bullion, a non-yield bearing asset and a traditional inflation hedge, tends to be particularly sensitive to interest rate changes compared with other riskier assets such as equities.
Spot gold was down 5.2 percent at $1,280.54 an ounce by 4:28 p.m. EDT (2028 GMT), having hit $1,276.19, which marked its lowest level since Sept. 21, 2010.
The Thomson-Reuters/Jefferies CRB commodities index dropped 3 percent, while benchmark U.S. 10-year bond yields rose to the highest levels since August 2011, with few signs of when the trend will end.
U.S. Comex gold futures for August delivery settled down $87.80 an ounce at $1,286.20, with trading volume already surpassing 360,000 lots, on what might be the highest daily turnover in nearly a month, preliminary Reuters data showed.
Gold is now more than 30 percent below its record high of $1,920.30 an ounce, set in September 2011.
CHART SHOWS MORE LOSSES POSSIBLE
Analysts said gold is on weak technical ground, with few levels to support prices until they go below $1,200 an ounce, after its sharp pullback to a near three-year low on Thursday.
Spot gold's 14-day relative strength index dropped to 25, below 30, which marks the area traditionally seen as over-sold territory.
Some analysts said, however, that gold could benefit should the U.S. economy worsen or not improve fast enough, prompting the Fed to suspend plans to taper monetary stimulus.
"Weaker data in the coming months could push back unwinding, lower yields and thereby support gold," said James Steel, chief precious metals analyst at HSBC.
Signs of the end of the Fed's mortgage-bond buybacks known as quantitative easing, the single-most important driver of gold, have helped push prices down more than 20 percent this year after 12 straight years of gains.
Heavy selling by institutional investors also showed no signs of abating. Bullion holdings in the world's biggest gold exchange-traded fund SPDR Gold Trust fell 0.2 percent to their lowest in four years.
Silver was the biggest decliner among the precious metals, sliding nearly 8 percent to $19.64 an ounce, having hit a low of $19.58 an ounce, its weakest since September 2010.
Platinum dropped 3.6 percent to $1,359.50 an ounce, while spot palladium slid 4.7 percent to $661.25 an ounce.
4:28 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold AUG 1286.20 -87.80 -6.4 1275.40 1351.20 347,943
US Silver JUL 19.823 -1.800 -8.3 19.535 21.280 116,037
US Plat JUL 1363.80 -60.10 -4.2 1355.20 1419.20 23,244
US Pall SEP 665.10 -31.30 -4.5 660.65 695.50 6,757
Gold 1280.54 -70.15 -5.2 1277.03 1351.06
Silver 19.640 -1.670 -7.8 19.580 21.330
Platinum 1359.50 -50.50 -3.6 1359.50 1416.74
Palladium 661.25 -32.75 -4.7 664.25 693.00
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 367,191 210,063 180,458 26.09 4.36
US Silver 163,325 55,038 56,645 32.3 1.07
US Platinum 28,563 13,464 11,737 21.9 -0.01
US Palladium 6,826 6,451 5,566