On MCX, gold futures slipped nearly 6% to Rs 51,739 while silver futures nosedived 12% to settle at Rs 66,347 per kg.
In the international market, gold sank as much as 4.3% on Tuesday, facing its worst one-day rout in 7 years, as a return of risk appetite following encouraging economic numbers and hopes of new coronavirus
relief package boosted the S&P 500 to near record highs.
Other precious metals
also took a beating, with silver plunging as much as 8% - its biggest daily decline since mid-March. It was down 7.2% to $27.06 per ounce. Spot gold plunged 4.2% to $1,941.71 per ounce, retreating from last week's record of $2,072.50. US gold futures dropped 3.5% to $1,969.20 per ounce.
"The retreat was inevitable," said StoneX analyst Rhona O'Connell, adding that gold has been technically overbought for a while.
That gold did not advance further despite rising geopolitical tensions showed many supportive elements for gold have already been priced in, she added.
Adding to gold's headwinds, global equities hit multi-month highs on expectations US Congress will agree a massive stimulus deal while looming trade talks raised hopes of an easing in tensions between the United States and China.
Also weighing on gold, US producer prices rebounded more than expected in July.
The dollar, too, retained recent gains, making gold less attractive for investors holding other currencies.
There is a battle now, because from a technical perspective, short-term traders are looking at which retracement levels can come into play after the breakout to record levels, said Saxo Bank analyst Ole Hansen.
Most analysts still expect a positive trajectory for gold, with the metal having gained nearly 30% this year as unprecedented money-printing by central banks and near-zero interest rates pushed investors into bullion as a hedge against possible currency debasement and inflation.