The price of gold fell more than 2 per cent yesterday, set for its biggest daily drop since the metal's historic decline in mid-April, hit by a commodities sell-off and uncertainty ahead of a policy statement by the US Federal Reserve.
Spot gold fell 2.2 per cent to US$1,444.34 an ounce in New York morning trade.
Gold holdings in exchange-traded products (ETPs) plunged 174 tonnes last month, the biggest drop ever, as prices entered a bear market and wiped US$17.9 billion from the funds' value.
Holdings in the ETPs slumped 7.1 per cent to 2,275.84 tonnes, the lowest since October 2011. The value of the assets dropped to US$108.1 billion.
Investors pulled US$10.23 billion from gold funds in the first quarter, the most since at least 2000, when the data begins, according to EPFR Global.
The drop in ETP holdings underscores how some investors have lost faith in gold as a traditional store of value, even as central banks print money to boost growth.
While prices have rebounded since touching a two-year low on April 16, they fell 7.7 per cent last month, the biggest loss since December 2011, as the stock market rallied and consumer costs remained stable.
"This is a capitulation by gold investors, as equities were winning and there were no signs of inflation," said Tom Winmill, a fund manager for Midas Funds.
"People are moving funds from non-yielding to yielding assets. That's the selling pressure out there at the moment," said Jonathan Barratt, the chief executive of Barratt's Bulletin, a commodity newsletter in Sydney.
The metal's drop had been "surprisingly rapid", Goldman Sachs said.
Prices rebounded 4.2 per cent last week as demand surged for coins and jewellery.