Gold's 4 percent slide in a matter of minutes on Monday came after a record 3.3 million lots of the metal, or about 33 tonnes, were traded on a key Shanghai physical contract, as top consumer China appears to be increasingly shunning bullion. The selling came as investors have been finding less and less reason to hold gold as a safe haven, with the dollar strengthening ahead of what is expected to be the first increase in US interest rates for nearly a decade.
Spot gold ended a 12-year rally in 2013, after hitting a record high of $1,920 an ounce two years earlier. With the US dollar increasingly gaining favour as a rate hike looms, gold faces still more downside risk. "It looks like the end of an era for gold," said Howie Lee, analyst at Phillip Securities in Singapore, saying China has been grappling with oversupply after importing a record volume in 2013.
China said on Friday its gold reserves were up 57 percent at the end of June from the last time it adjusted its reserve figures six years ago. Despite the tonnage increase, gold now accounts for 1.65 percent of China's total foreign exchange reserves, against 1.8 percent in June 2009. Spot gold fell to as low as $1,088.05 an ounce - its weakest since March 2010 - shortly after the Shanghai Gold Exchange opened. Gold regained some ground as the selloff subsided, trading above the key $1,100 support level. Just over 3 million lots were traded on a key contract in Shanghai, compared to less than 27,000 lots on Friday, Reuters data showed. Prior to Monday, the volume for July had averaged less than 30,000 lots."