By Frank Tang and Clara Denina
NEW YORK/LONDON (Reuters) - The price of gold bullion tumbled nearly 8 percent in heavy trade on Monday, and was on track for a record single-day loss of more $100 per ounce, as investors ditched the precious metal en masse in search for better returns in other assets.
Gold's drop triggered a commodity selloff and was mirrored by a 9 percent plunge in silver. Platinum and palladium also fell sharply.
Bullion's harrowing sell-off caught many veteran investors by surprise. Monday's $110 drop eclipsed the previous biggest loss on January 22, 1980, the day after gold hit its then-record $850 on global panic over oil-led inflation due to Soviet intervention in Afghanistan and the Iranian revolution.
In percentage terms, it is set for its biggest one-day fall since 1983.
There have been no sudden changes in the macro economic argument for gold in the last week, although numerous factors have kept gold from rising while investments like U.S. stocks took off.
While last week's news that the Central bank of Cyprus might sell gold reserves to finance its European Union bank bailout did trigger a rush for the exits when bullion slid below the pivotal $1,500 an ounce threshold, few saw it likely to usher in a round of other official disposals.
"The pressure from proposed sale of Cyprus gold is one of the factors, and once one of them start they all run from the hen house," said Robert Richardson, senior account executive and trading officer at Canadian broker-dealer W.D. Latimer Co. Ltd.
The big question is whether the gold bull market is over after 12 years of consecutive yearly gains. Gold hit the lowest price since February 2011 and has now almost halved its rally since the 2008 economic crisis, leaving the metal around $550 below its record high of $1,920.30 set in September 2011.
"The next major level from a technical prospective is $1,310, so there's quite a long way down before you find a big level of support," said Tom Kendall, analyst at Credit Suisse.
Recent signs that Fed officials appeared to be nearing a decision to start winding down their bond purchases to end stimulus contributed to the negative tone for gold, even though inflation has failed to materialize as feared during its rounds of post-financial crisis quantitative easing.
"The reason why a fund would hold gold is to preserve purchasing power or to hedge against inflation," said Sean McGillivray, head of asset allocation at Great Pacific Wealth Management.
"When the spot price of gold falls relative to its holdings, it is no longer preserving that purchasing power and that weighs heavily on gold," he said.
Spot gold dropped as low as $1,349.44 an ounce before recovering slightly to $1,362.89 by 2:25 p.m. EST (1825 GMT), down 7.8 percent.
U.S. futures for June delivery settled down $140.30 at $1,361.10 in record turnover, with trading volume set for a record high at almost 700,000 lots, more than tripled its 30-day average, preliminary Reuters data showed.
Disappointing Chinese economic data earlier on Monday simply gave investors another excuse to slash holdings as U.S. equities and other key industrial commodities including oil and copper fell. But Monday's selloff in the Dow Jones industrial stock average comes days after stock indexes hit record highs.
FUND LIQUIDATION WEIGHS
Shares of gold mining companies took a heavy toll as bullion prices plummeted, as Canada's Barrick Gold Corp
On Monday, hedge fund manager and long-time gold bull John Burbank said the recent sharp selloff in the precious metal came as a surprise to many investors as an some economic improvement and general decline incommodity prices took their toll.
Investors cut exposure to gold, with total holdings at the world's major bullion gold-backed exchange-traded-funds falling to their lowest since early 2012.
Traders also cited liquidation by prominent hedge funds in gold exchange traded funds, especially the SPDR Gold Trust
Paulson & Co, run by billionaire financier John Paulson and by far the biggest shareholder in SPDR Gold, told clients earlier this month its gold fund suffered double-digit losses during the first quarter.
The reversal of yen carry trades, in which investors borrowed cheaply in the Japanese currency to reinvest the money in higher yield assets, also led to some gold selling as the yen rebounded from a four-year low against the dollar.
Investors have been dumping gold for the past three weeks. Even escalating tensions on the Korean peninsula and Japan's aggressive monetary stimulus have failed to burnish its safe-haven appeal.
Among other precious metals, silver was down 9.6 percent to $23.37 an ounce. Palladium dropped 6.9 percent to $659.47, while platinum was down 5 percent at $1,410.24.
(Additional report by Lewa Pardomuan and Manolo Serapio Jn in Singapore; editing by Alden Bentley)
