Gold Settles Down 9.3%, Lowest Since February 2011

Pro: Why Gold's Headed Lower

Gold plummeted more than 9 percent on Monday, and was down more $140 per ounce, as investors ditched the precious metal en masse in search for better returns in other assets.

Gold's drop triggered a broad based commodity sell-off and was mirrored by a 10 percent plunge in silver. Platinum and palladium also fell sharply.

Bullion's harrowing sell-off caught many veteran investors by surprise. In percentage terms, it has fallen 13 percent over the past two days.

There has been no drastic changes in gold's supply/demand picture in the last week although numerous factors have kept gold from rising while investments like U.S. stocks took off.

(Read More: Miners Get Crushed as Gold Extends Fall Below $1,500)

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 has now halved its rally since the 2008 economic crisis, leaving the metal $550 below its record high of $1,920.30 set in September 2011.

Weaker-than-expected 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.

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.

(Read More: Fed Doves Play Down Threat of US Inflation)

The yellow metal has been a traditional hedge against inflation and safe haven in times of economic turmoil.

Gold dropped as low as $1,355.80 an ounce before recovering slightly to $1,369, still down 7.4 percent.

U.S. gold futures settled down $140.30 at $1,361.10 per ounce at the lowest level since Feb. 11, 2011. The drop was the largest fall in dollars on record and the biggest percent decrease since March 17,1980.

Gold ETF Outflow, Cyprus

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.

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.

"We are entering a phase of additional long liquidation by ETF investors and short-selling from hedge funds, which will continue in the foreseeable future,'' Saxo Bank senior manager Ole Hansen said.

Among other precious metals, silver was down 8.6 percent to $23 an ounce. Spot palladium dropped 4.7 percent to $667.72, while platinum was down 4.7 percent at $1,415 per ounce.