Gold had its biggest one-day price drop since 1982 overnight on Monday, dropping 9% to US$1361.10 an ounce. That is the lowest trading price since February 2011.

Norman Stacey, of Diversified investments, said the drop was not unexpected but the extent of it had shocked some people.

He recently stopped advising investors to purchase gold. “The reasons for gold to be appreciating have passed.”

Gold is an investment people turn to during times of financial crisis or strong inflation. Stacey said serious inflation was still a way off yet and global conditions had calmed somewhat\

But Charles Drace, of Charles Drace Investment Consultancy, said people should not read too much into the decline.

His firm had held on to bullion but also taken short positions in the market. “We had them in place before the big drop because we wanted to cover both ways.”

Drace said it was likely that increased demand due to the cheaper price would push the price back up. Investors were still seeking safety and quantitative easing by governments prompted people to look for inflation-proof investments, he said.  “We view this as just another correction to pull gold prices back to a reasonable range, before they start growing again.”

Pathfinder has an allocation of 4% to gold in its commodity fund. Spokesman Paul Browney said there were rumours large sell orders, worth up to US$15 billion in one hit, had been placed on the New York exchange yesterday. "Once the selling starts people have to cut positions to preserve their equity."

He said a catalyst may have been the headlines out of China showing lower growth than expected. "But other figures there are quite positive."

Browney said it was likely gold prices would soon find their base. “The first wave of selling will have shaken out those who needed to be shaken.”

Prices bounced slightly last evening in Asian trading. "Although they are still pretty low."

Capital Economics, in Britain, issued a statement saying  the trigger for the slump in the gold price was aggressive selling by speculative traders, rather than any change in the fundamental drivers.

“Gold has also been caught up in the broad-based weakness in commodity markets, including oil and industrial metals, due to softer US and Chinese data. Once trading calms down, we expect gold to stage at least a partial recovery.

Stacey said gold was still lucrative to produce and miners would not be going out of business any time soon. “There would be very few producers that have production costs near the current spot price of bullion.”