Panic selling hit the gold market, driving a mad rush out of other commodities and risk assets, as traders saw China's disappointing gross domestic product data as confirmation the global economy is slowing.
Gold suffered its worst one-day drop since 1980, with the metal falling to $1,362, from a level of $1,500 on Friday. The 9.3 percent dive in gold follows a five percent decline in the metal Friday.
"I think the last $20 has been margin selling. The market is falling like a knife. People are saying, 'Get me out now,' " Phoenix Futures President Kevin Grady said. "You're also seeing people selling energy profits to pay for metals losses. You're seeing a tremendous amount of gold liquidation today."
West Texas Intermediate fell 2.8 percent to $88.71, and Brent, the international bench mark closed at $100.39, a 2.6 percent decline. Silver plunged 11 percent, while platinum lost 4.8 percent and copper fell 2.3 percent.
Stocks also joined in the selling, with declines accelerating in the afternoon and ending on the lows of the day, after two explosions killed three and injured dozens at the Boston Marathon. The Dow closed down 1.8 percent, and the S&P 500 was down 2.3 percent while Nasdaq was down more than 2.3 percent. Investors rushed into bonds, pushing the yield on the 10-year to 1.68 percent, its lowest close of the year.
"I think it's all the snuffing out of positive economic sentiment that the global economy is going to be stronger this year," said Gene McGillian, analyst with Tradition Energy. "You have ample supplies of oil. You have ample supplies of gasoline. You haven't seen a pickup in gasoline demand yet. Down at these levels the Fed's easing policies are going to provide some support."
China early Monday reported first-quarter GDP growth of 7.7 percent, down from 7.9 percent in the last quarter and below an expected 8 percent. The report follows weaker economic data in the U.S. in the last several weeks. Gold is also selling off on concerns about central bank selling, after Cyprus said it would sell 40 tons of gold.
(Read More: Has China's Economy Hit a 'Dead End'?)
"It's basically deflation. People are saying there's going to be no growth," said Grady. By 10:30 a.m. ET, the volume in gold was about 425,000, he said, compared to a recent average of about 130,000.
"The price of gold is an economic and political barometer, and it's showing weakness everywhere. We were hoping that China would be taking some copper deliveries and gold deliveries. Now it looks like they're not going to take much of anything," said RBC analyst George Gero.
Goldman Sachs, which urged investors to short gold in a prescient call last week, said it expects further pressure on Brent prices due to demand weakness in Europe. Brent could also be impacted as more oil moves via pipeline to the U.S. Gulf Coast from Cushing, Okla., bringing more WTI to the market.
"…while we believe that oil market fundamentals remain in tact and we expect Brent prices to move back to our short term target of$110/bbl as we come out of the seasonally weakest demand period, we see some increasing short term risk to our trading recommendation to hold a long Brent crude GSCI position," wrote Goldman analysts, including widely followed analyst Jeffrey Currie. "We therefore close this position with a loss of 15.48 percent but will re-evaluate the opportunities once we get more clarity on the state of European demand."
McGillian said the oil market was also concerned about a drop in Chinese oil demand in March, to 9.7 million barrels a day, a seven month low.
"You get a little disappointing news out of China, and they really take the hammer to it. The rising economic and the huge oil stockpiles we have were really weighing on the market," said McGillian.
Analysts were reluctant to put a price target on gold, since it is in free fall. But Grady said the Fibonacci retracement of the move from $668 in 2008 to $1920 per troy ounce in 2011, would be $1300.
Besides institutional and hedge fund selling, individual investors are bailing on their gold positions held in ETFs. The SPDR Gold Trust ETF GLD was on its way to record volume, trading 55 million shares by late morning. In fact, its volume was higher than the S&P 500 SPDR ETF SPY. GLD's record volume is 79.2 million shares on Dec. 4, 2009.
There were also continuing rumors that Merrill Lynch pushed through a big sell order of four million ounces early Friday. Bank of America Merrill Lynch had no immediate comment.