Gold and silver are on a correction course, as prices have fallen sharply in the past two days.

Internationally, gold on the Chicago Mercantile Exchange is down $200 an ounce or a little over 10 per cent. In India, too, the price has fallen from Rs 28,094 per 10g on Monday to Rs 25,670 per 10g at Zaveri Bazar here, while silver has lost Rs 3,785 per kg to close at Rs 60,545 per kg.

It has resulted in a huge fall in open positions on the MCX, the leading bourse for commodity futures. Brokers have squared off some open positions to recover for margins and traders were also rushing to make good on whatever profit was left.

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Late entrants in gold were panicky and selling their positions. In silver, those who'd seen last April-May's sharp fall were also cautious and booked profits.

The recent rise gave an opportunity to some players that had created long positions, when prices were above Rs 60,000 per kg three to four months earlier, said a trader in Zaveri Bazaar.

In August, in two tranches, margins have been raised to 27 per cent, which has led to profit booking and unwinding of positions.

Such a sharp fall was previously seen in April, when the CME had raised margins on silver prices, which plunged by nearly a third in just a week.

Silver being a high beta commodity, the movements were sharp, which analysts hope may not happen in the case of gold.

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"Apart from high margins and profit booking in precious metals, there is a buzz in the market that Gaddafi was selling gold from Libya's forex reserves to pay for his protection and payment towards imports, which has led to a sharp fall in prices," said Ajay Kedia, director, Kedia Commodities.

The sharp fall was aided by stop-loss triggers and long unwinding or profit booking, which has put further pressure on prices.

A similar situation was seen on Indian commodity exchanges as well. Brokers have asked for making up mark-to-market losses for long positions from yesterday evening's session and on Thursday's day session.

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There was huge selling on account of stop-loss triggers and selling to pay off margins, said a broker on MCX.

Open interest or positions in futures in gold-silver have seen sharp erosion. Gold's open interest has come down by 7.75 per cent, while silver lost 2.07 per cent in just a day.

In the international market, gold reached a high of $1,911.5 an ounce yesterday and on Thursday was trading around $1,722, coming up from a low of $1,702.

"While these are unusual movements, I think gold prices are nearing bottom," said Bhargav Vaidya, a bullion analyst.

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In recent months, the demand for gold jewellery had taken a big hit but there was huge demand for investments in the form of bars and coins.

The correction in precious metals is seen as healthy and international market experts also believe the long-term trend in gold has not changed and remains bullish.

Yesterday morning in Asia, there was good demand for gold after Moody's downgraded Japan's rating but the fall started when the London market opened and accelerated when the US market opened.

Barclays Capital's commodity analyst said, "Gold prices suffered their largest daily decline (4.3 per cent fall yesterday) since January 1980. However, we believe this is a healthy correction for the market and barring further near-term weakness, the longer-term uptrend remains intact, given the macro backdrop."