The big plunge in gold prices Wednesday was likely amplified by investors dumping holdings of the largest bullion exchange-traded fund.

StreetTracks Gold Shares ( GLD) saw redemptions of 21.51 tons of gold, worth more than $600 million, marking the biggest ever one-day decline in metal holdings for the fund, data from the firm showed.

Gold futures dropped over 3% at one point and reportedly caused order imbalances on the electronic exchanges, some traders say.

"How could it not impact on the downside?" asks Jon Nadler, a precious metals analyst at Montreal-based bullion dealer Kitco.

Current holdings of streetTracks Gold Shares total about 631 tons, or around twice the level held by Britain's Bank of England, and some observers say that the holding represents something of an overhang on the market.

"We have to think about the equivalent of a new central bank having been born and one which has no scruples about monetizing its gold," adds Nadler. "Institutional holders are only too happy to sell to lock in profits."

The selling came after gold ventured above $900 for the first time in New York. Benchmark futures contracts for bullion were recently tacking on $4.30 at $886.30 an ounce. The price of the metal has run up from around $840 at the beginning of the year.

In 2004, the World Gold Council developed the first bullion exchange-traded fund in conjunction with StateStreet, and it was quickly followed by a similar product from Barclays, the iShares Comex Gold Trust ( IAU), in January 2005. The latter product, however, has never been as popular and to date has only amassed holdings of 58 tons of gold bars.

The development of the ETFs opened the bullion market to both institutional and retail investors in a way never possible previously by eliminating burdensome administrative costs usually associated with holding gold. But the popularity of the funds in terms of capital deployed is dominated by institutional holders.

As such the holdings of the fund can be expected to gyrate up and down according to sentiment on Wall Street.