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Gold plunged into bear market territory Friday on reports that Cyprus's central bank is dumping its hoard of the precious metal.

Facing waves of selling from skittish investors, the price of gold for immediate delivery sagged $81.90 (U.S.) to $1,483 an ounce, the lowest level in nearly two years.

Gold hit a record closing high of $1,900 in early September, 2011, and has been sliding lower ever since. A bear market is usually defined as a drop of 20 per cent from a previous high, and gold's tumble below that line has awakened fears that further declines are likely.

The metal's recent decline has pounded the stocks of gold producers and weighed on the Toronto stock market, which is heavily laden with metal miners. The Canadian exchange has been one of the world's weakest performers this year even as stocks in the U.S. have been rising to new records.

Traders say investors bailed from gold on rumours that the Central Bank of Cyprus would be forced to sell its bullion cache, worth more than $500-million at current prices, to satisfy creditors in the country's bailout package.

"The idea that a central bank would sell gold has had a particularly negative impact today," said Patricia Mohr, vice-president of economics and commodity market specialist at Bank of Nova Scotia.

The rumours of a Cypriot selloff swept the market midway through Friday morning, just as gold was trading around $1,527 an ounce, which has been widely seen as a so-called "support level" by investors who follow chart patterns. Two previous declines, one in 2011 and the other last year, stopped there.

But buyers failed to appear this time, and the price collapse accelerated after the breach through the support level triggered automatic sell orders known as stops. Gold mounted a modest recovery, but the decline resumed late in session and the metal closed near the day's lows.

Adding to the nervousness has been gold's inability to make any gains despite a slew of developments that should have been highly positive for the metal, which is widely regarded as a haven from economic woes.

Earlier this month, Japan announced a huge round of money printing, known as quantitative easing, designed to weaken its currency and cause inflation, normally bullish for gold. Also seemingly favourable was the decision by Cyprus to confiscate part of large bank deposits held in the country as part of its bailout package, and the U.S. Federal Reserve Board's continuing high rate of money printing.

"All of those factors are fundamentally bullish for gold" over the longer term, observed Peter Hug, global trading director at Kitco Metals Inc., a Montreal-based gold dealer.

But in the short term, many investors have been cashing out of gold and moving their money to the stock market, where the prospects for gains appear far better. Stocks have been rising in part because of growing sentiment that the global economy, led by improving prospects in the U.S., is on an upswing, undermining the case for gold, which performs better during periods of economic instability.

As a sign of the shift in thinking, holdings of gold exchange-traded funds have fallen nearly 10 per cent since the end of last year. As investors sell ETFs to buy stocks, the gold held by the ETFs is dumped onto the market, adding to the downward pressure on bullion prices.

Trading on Friday highlighted the divergence between the gold-heavy Canadian market and its U.S. peers. The S&P TSX composite index tumbled 1.2 per cent, a far larger percentage drop than the Dow Jones industrial average, which closed nearly unchanged, or the S&P 500, which lost only 0.28 per cent.

The prices of silver, platinum and palladium, along with crude oil also ended Friday with sharp losses, adding to the woes in Toronto.