Story Highlights

More than 90% of the worlds gold has been mined since the California Gold Rush A troy ounce of gold equals 31.1 grams Fort Knox has 4,600 tons of gold, according to the World Gold Council

If you bought gold to protect against a global market collapse, you had a dress rehearsal Monday. Unfortunately, the collapse hit the gold market, too.

The price of an ounce of gold plunged $140.40 Monday to $1360.60, or 9.4%, the worst one-day drop in 30 years. It’s been a brutal market, and it really turned nasty today, says Dan Denbow, manager of USAA Precious Metals and Minerals fund. Gold has fallen about 28% since its high of nearly $1,900 an ounce in 2011.

Silver got tarnished as well, falling $2.97 to $23.36, or 11.3%, an ounce.

On Tuesday, around 8:30 a.m. ET, gold was showing a bit of a bounce, up $29.80 an ounce to $1,390.90.

Worries about rising inflation sparked by the Federal Reserve’s monetary policies and the U.S. national debt had sent gold soaring from its low of $255.55 an ounce in 2001. As gold surged during the 2008-2009 bear market in stocks, gold bulls touted the yellow metal’s ability to be a store of value in hard times.

Rumors swirled around what caused gold’s Monday tumble. Some believed that selling by the central bank of Cyprus may have started the fall. Although its reserves are tiny by central bank standards — about 40 metric tons, vs. 8,133 tons for the U.S. — traders worried that other troubled European countries might start selling their gold reserves as well. Greece, for example, has 112 tons of gold.

Others thought that the sellers may have been more interested in pushing down the price of gold for more nefarious reasons, such as profiting from short selling — a bet on falling prices.

One tip-off was how the sell-off started. On Friday, there was one big seller at the COMEX opening, says Miguel Perez-Santalla, vice president of business development at BullionVault. And on Sunday night, he says, a seller dumped 53,000 gold futures contracts. Each futures contract is worth 100 ounces of gold.

People who want to unwind big positions usually do so gradually, so as not to cause panic. That wasn’t on the minds of those who sold Friday and Sunday, Perez-Santalla says.

And the gold market is small in relative terms: There are 170,000 metric tons of gold in the world, according to the World Gold Council, enough to create a cube 67 feet on each side. It doesn’t take much volume in commodity markets to drive prices lower, Denbow says.

Selling pressure flowed to large exchange traded funds that own physical gold and silver. SPDR Gold Shares, the largest gold ETF, fell 8.8%. IShares Silver Trust fell 12.6%. Perez-Santalla says customers liquidated about 1% of their gold holdings — unusual in a company geared toward buy-and-hold investors.

More fundamental issues may have weighed on the gold market as well. China reported its first-quarter GDP rose 7.7%, below economists’ estimates of 8%. The Chinese GDP number was slightly below expectations, but there are suspicions about the number, and it could be even weaker than reported, Denbow says.

Weak global growth means there’s little demand to push prices up — and that, in turn, means little inflation. In the longer term, the budget, entitlements and currency debasement are all out there, Denbow says. But at the moment, no one cares about that.