Gold fell more than 1.5 percent on Wednesday, its biggest one-day drop in almost four weeks, hit by a heavy bout of stop-loss orders as momentum-driven fund investors liquidated their bullish positions.

After trading slightly lower in Asian dealings, bullion prices suddenly dived $25 US at the U.S. pit-session open with an equivalent of more than 2 million ounces of COMEX gold futures changing hands in less than five minutes.

There was market talk and speculation about a so-called "fat finger" erroneous trade related to the contract rollover to February from December before Friday's first-notice day.

A CME spokesman said the market simply sold off on Wednesday without triggering Stop Logic, a momentary pause to prevent large price movements.

"I see a significant percentage of stop-loss orders being triggered by algorithm traders. That could further accelerate the declines as we see highly leveraged investors reduce positions," said Jeffrey Sica, chief investment officer of Sica Wealth, which manages more than $1 billion in assets.

Spot gold hit a low of $1,705.64 an ounce, its lowest price since Nov. 16. By late Wednesday morning, it was down 1.5 percent at $1,715.96 an ounce.

U.S. COMEX December gold futures were down $26.30 at $1,716.

Trading volume was extremely heavy and already more than doubled its 250-day average at 370,000 lots, on track to be one of the highest daily turnovers in 2012, preliminary Reuters data showed, partly boosted by the December-February contract rollover.

Gold's sell-off dragged prices below the 50-day moving average, and the metal also fell near recent lows between $1,703 and $1,705. Bullion could slide further due to a lack of chart support if it breaks below recent lows, analysts said.

LOST MOMENTUM OR SAFE HAVEN?

Liquidation by jittery investors who recently added to their long positions following Friday's 1.5 percent rally also fueled Wednesday's rout. Open interest, a gauge of market activity, fell on Tuesday but held near the record high reached earlier this week.

Investors are still clinging to gold's appeal as an ultimate haven from risk. Uncertainty surrounding the $600 billion worth of U.S. tax hikes and spending cuts in the new year could yet prove positive for the metal.

This was demonstrated by holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, which hit a record high of 1,345.813 tonnes on Tuesday.

Among other precious metals, silver fell in line with gold but also rebounded off a one-week low at $32.89. It was last traded 1.4 percent lower at $33.06 an ounce.

Spot platinum was down 0.5 percent at $1,600.50 an ounce, while spot palladium eased 0.1 percent at $664.50 an ounce.