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New York, Apr.13, best stock .- Gold plunged into bear market territory Friday, as a fierce selling wave swept across commodities markets and shorts raised their stakes. Gold tumbled four percent and fell below $1,500 per troy ounce for the first time since July, 2011 . It officially entered bear market territory Friday, down more than 20 percent from its August, 2011 high of $1,891.90.
Silver futures lost nearly five percent to $26.30, and it is now 45 percent below its April, 2011 to high. Oil fell more than 2 percent , with West Texas Intermediate breaking through a support level at around $92 per barrel.
Reports that Cyprus was going to sell 40 tons of gold was an immediate catalyst for selling, but traders say the bigger factors are concerns about a softening economy, and reports of weaker demand in the oil market.
(Read More: Why a Cyprus Gold Sale Isn't Being Taken Seriously )
"There's a tremendous amount of new shorting going on in the metals market right now," said Kevin Grady, president of Phoenix Futures and Options. Grady said when gold broke through the $1,525 to $1,539 level, it unleashed a new wave of selling.
"That's where all the big stops were. The big support level will now be the huge resistance levels...I think we're going to test the 1,450 area as long as the market does not break back above those levels and run the shorts out," he said. "The shorts have the market going their way, and I don't see them getting out. Right now they control this market."
The market has been increasingly negative on gold, with Goldman Sachs making a high-profile call to short it this week. "You've had lesser open interest. In the last few months, we lost about 20 percent of our open interest and on top of that every other asset manager has moved away from gold into strong stocks. Right now the path for least resistance for gold is lower," said RBC analyst George Gero.
(Read More: Is 2013 the Year of $50 Oil and $1,200 Gold? )
The fact that Cyprus came up with a proposal to sell 40 tons of gold, after it appeared earlier reports were not true, spooked the market. "That's all it took. All the sell stops went off, and all the bells went off, and everybody's bailing ahead of this," Gero said.
"It's not the fact that Cyprus may have to liquidate their gold reserves in order to finance their bailout, it's the fact that if any other country in the world gets in trouble, gold is going to be the first thing to go," said Bill Baruch, senior market strategist at iiTrader in Chicago. "And really,generally speaking, in the last five years, countries have had enormous gains in gold reserves. So if you're a country and you run into financial troubles, those gold reserves are the first thing they're going to have to liquidate in order to finance their bailout."
Baruch expects to see selling continue. "A bottom isn't a price, it's a process. So our target is $1,474, but that might not be the exact low. It just might be where this process starts." Baruch sees $1,474 as a level of support. He is currently short gold.
But Grady said Cyprus is a negative warning about the fiscal conditions in Europe, and it should normally be a positive for gold, as should Friday's weak U.S. economic data and the saber rattling by North Korea.
As for oil, John Kilduff of Again Capital said the weak economic reports are only adding to what the market is already suspecting.
"This past week, three lead agencies reduced their demand figures, and the IEA openly speculated about a potential bear market in crude, so the narrative from the m was much more damaging for the outlook than the actual numbers," Kilduff said.
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