The biggest gold rout in 30 years has reverberated through the local market, forcing investors to retreat from gold and other resources for a second day in a row.
A record sell-off of the precious metal on Monday plunged the country's biggest listed gold producer, Newcrest Mining, to its lowest share price since 2006, and raised fresh questions about the local metal sector's future.
Buyers returned to the market to recover some of the losses, with the S&P/ASX 200 Index closing 17.1 points lower, or 0.3 per cent, to 4950.8 points - after touching an intraday low of 4914 points.
The fall followed Wall Street's worst day this year, with the S&P500 tumbling 2.3 per cent after Chinese growth data disappointed and the Boston explosions spooked investors.
Credit Suisse strategist Damien Boey said the decline in gold prices "foreshadowed that something is not right with the global economy".
"There are various explanations, but it's a clear signal," he said.
The price of the metal has been undergoing extraordinary reversal from a decade-long rally. Since reaching a high of $US1888 an ounce in August 2011, gold has been on a downward slope. The decline picked up pace on Friday, when gold fell 4 per cent, officially taking it into a bear market, which is defined as a 20 per cent drop from its recent high.
The damage grew much worse on Monday, when the price of an ounce of gold dropped 9.4 per cent, or $US140.40, to $US1360.60 for the April contract - the sharpest such one-day decline since February, 1983.
A number of banks, including Goldman Sachs, have recently lowered their forecasts for gold. But the recent drop has been greater than even the most pessimistic predictions.
He said the recovery in mining stocks was buoyed by buyers being enticed by low prices, but that the sector's long-term outlook was uncertain. "It's really fighting gravity at the moment, because day by day, we see another commodity price fall," he said.
"If global GDP growth is going to slow, and commodities prices are going to fall 20 or 30 per cent, then where does that put our miners? Where does that put our mining capex plans?"
JPMorgan gold analyst Joseph Kim voiced a similar concern: "In our view, persistent weakness in gold could result in revisions to life of mine production plans and scheduling, or even outright closures, as miners react to revised economics under lower gold price," he said in a note to investors.
The Australian dollar was lower at $US1.039.
The Reserve Bank of Australia said it was ready to push interest rates lower if required, but that the economy was unlikely to need it.
The sentiment was released in the minutes of the Bank's latest meeting, with ANZ economists claiming further monetary easing remained a strong possibility "with unemployment, job ads and capex the key releases to monitor in the near term".
Gold miner Evolution Mining ended the day as the worst performing stock on the ASX 200, down 18.1 per cent to 99.5¢.
Mining services company Boart Longyear closed 12.7 per cent lower at 96.5¢, while Newcrest Mining finished the day 5.1 per cent lower at $17.