Gold plunged by Rs 700 to Rs 27,140 per 10 grams, while silver tumbled by Rs 1,700 to Rs 62,500 per kg, following the precious metal's steepest decline in more than three years in overseas markets.
In global markets, gold nosedived by 7.5 per cent to USD 1,723.70 an ounce from its record high of USD 1,913.50 an ounce on Aug 24, the biggest drop since Mar, 2008.
The trading sentiment was dampened in global markets as some investors offloaded their holdings of the precious metal after CME, the world's largest futures market, increased the margin requirement for futures transactions.
The minimum amount of cash that speculators must deposit for futures trade in gold was raised by 27 per cent per 100 ounces of the shiny metal on the CME.
Stockists in the Delhi bullion market which was closed on Aug 25 in support of Anna Hazare's fast demanding a strong Lokpal Bill indulged in heavy selling in tandem with melting global markets.
In addition, demand from retailer customers has dried up at existing high levels, which further influenced the market sentiment.