Gold tumbled to an eight-week low Wednesday on speculation that the Federal Reserve will refrain from offering additional stimulus as the economy recovers.

The Fed Tuesday raised its economic assessment and said the labor market is improving, reducing expectations that the bank will begin buying more bonds. Gold has surged more than 85 percent since December 2008 as the Fed held U.S. borrowing costs at a record low and bought $2.3 trillion in housing and government debt during two rounds of so-called quantitative easing.

“Yesterday’s statement ruined all hopes of seeing any kind of easing in the foreseeable future,” Fred Schoenstein, a trader at Heraeus Precious Metals Management in New York, said in a telephone interview. “We are witnessing a washout in gold.”

Gold futures for April delivery fell 3 percent to $1,642.90 an ounce on the Comex in New York, the biggest drop for a most-active contract since Feb. 29. Earlier, the price touched $1,639.20, the lowest since Jan. 17.

The metal may drop to as low as $1,200 by the end of the year, according to Christoph Eibl, a founding partner of Zug, Switzerland-based Tiberius Asset Management AG.

“It is not a messiah,” Eibl said at the Bloomberg Link Precious Metals Conference in New York Tuesday. “Eventually, trust will come over to the fiat currency.”

‘Dangerous Territory’

Prices are in “dangerous territory” after falling below the 200-day moving average, Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter, said in a report e-mailed today. The measure is near $1,678.

Futures also fell as UBS AG said India, the world’s biggest buyer, may consider higher gold import-taxes because of a budget deficit.

Some think bullion, up 8.1 percent this year before Wednesday, is still headed for a 12th straight annual gain. Prices may rise to $1,897 in New York by Dec. 31, based on the average of 14 respondents in a survey at the Bloomberg Link conference Tuesday in New York.

Demand has strengthened as Europe seeks to contain its debt crisis, China’s economic expansion slows, and governments from the U.S. to the U.K. keep interest rates at all-time lows to shore up growth. Central banks have been net buyers for three straight years, the longest stretch since 1973, World Gold Council data show. Holdings in exchange-traded funds backed by the metal reached a record 2,410.2 metric tons Tuesday, data compiled by Bloomberg show.

Other precious metals also slumped Wednesday. Silver for May delivery sank 4.2 percent to $32.181 an ounce, the biggest decline since Feb. 29. Earlier, the metal touched $31.65, the lowest since Jan. 25.

On the New York Mercantile Exchange, palladium futures for June delivery declined 1.6 percent to $697.45 an ounce. Platinum futures for April delivery fell 1.6 percent to $1,675.30 an ounce.