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'Perfect Storm' Sends Gold Bugs Scurrying (Update 5)

These easing policies, combined with economic uncertainties in Europe, have led many analysts and investors to believe buying potential remains in play for gold.

Reports emerged last week that Cyprus is selling its gold reserves, which has led many investors to wonder if struggling nations like Portugal and Spain will also begin to liquidate their gold holdings in exchange for more capital.

Chinese gross domestic product grew 7.7% in the first quarter of 2013. The figure trailed economists' expectations of 8% growth, according to a Reuters poll, and receded from the 7.9% growth the country saw in the fourth quarter of 2013.

Silver prices for May delivery sank $2.97 to $23.36 an ounce, while the U.S. dollar index was gaining 0.21% to $82.30.

"One of the problems I think . . . is the fact that gold investment for many has almost become religious; by that I mean there was nothing really that would call for lower gold prices, only higher," Ole Hansen, head of commodities strategy at Saxo Bank, in a phone interview from Copenhagen. "A lot of people have been clinging onto this investment throughout the last six months . . . but you could easily find arguments convincing yourself you are on the right idea."

Ole said his projection for 2013 has been gold at $1,200 an ounce.

Gold dropped more than $60 an ounce on Friday as the precious metal crashed through multiple levels of technical support, which signaled a shift to a bear market. But electronic trading in the late hours of Friday signaled the gold selloff had not reached a bottom, Phil Streible, a senior commodities broker at RJO Futures, said in an interview.

"At the end of Friday's electronic session the market was about $40 lower than the settlement price , so these people would have to . . . meet the losses," Streible said. "So over the weekend you saw a lot of traders reassessing their positions, and not only individual traders but these are also large funds and hedge funds as well that are forced to liquidate."

Liquidation pressure and long-only funds on Monday -- similar to Friday's trading action -- were continuing to sell off their positions.

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