Gold prices have plunged deeper, reaching their lowest level in more than two years as other metals also fell amid market pessimism owing to an unexpected slump in Chinese economic activity.

After falling below the $US1,500 an ounce benchmark on Friday with a drop of 90 dollars an ounce in two days, gold dropped to $US1,355.79 at one point on Monday, its lowest level since February 14, 2011, before edging back up a bit to $US1,371.03 in late London trading.

Forex.com economist Kathleen Brooks pointed to “fundamental factors that are weighing on the precious metal: weak growth in the US and China, weak inflation pressures globally and the prospects of indebted countries like Cyprus selling their gold reserves to pay back their debts.”

Dow Jones Newswires cited traders who noted that prices were also being pushed lower because speculators were selling the precious metal to avoid having to put up more money as collateral to keep their bets open.

Traders typically place just a small portion of a gold futures’ full value when they trade contracts, and this amount, known as “margin”, must be topped up when prices fall, Dow Jones explained.

The movement got a real boost however after China said its economy grew 7.7 per cent in the first quarter of this year, well below the 8.0 per cent forecast in a poll of 12 economists done by AFP and worse than the 7.9 per cent level seen over the the previous three months.

The news raised questions about the fundamentals of global growth, analysts remarked.

For Lee Hardman at the Bank of Tokyo-Mitsubishi, “global growth concerns intensified further overnight by the release of the weaker than expected Chinese real GDP (gross domestic product) report”.

The Indian economy has also produced a string of weak data, and both countries are among the world’s biggest buyers of gold.

Meanwhile, cash-strapped eurozone member was reportedly set to sell some of its gold reserves as part of an EU/IMF bailout program.

AFP ap