* Gold hovering just above $1,100 support level
* Massive volumes sold through Shanghai, New York in minutes
* Large funds seen as the most likely sellers
* Holdings of top gold fund SPDR at lowest since 2008
(Updates throughout, changes dateline from MANILA)
By Clara Denina
LONDON, July 21 (Reuters) - Gold was on the brink of five
year lows on Tuesday, with more losses expected in the coming
months following Monday's "bear raid" when sellers dumped an
estimated 33 tonnes in just two minutes.
The sudden bout of selling in Shanghai and New York occurred
during illiquid trading hours, with a wave of orders placed
during a one-minute period shortly after the Shanghai Gold
Exchange opened on Monday.
Within a further minute, the deals had been completed,
sending the most-active U.S. gold futures contract GCcv1 down
$48 to as low as $1,080.00 per ounce, its weakest since February
2010. Gold worth $1.3 billion changed hands on the Chinese and
U.S. markers, and the lack of liquidity on a day when Japanese
markets were closed for a holiday hastened the slide.
Spot gold XAU stood at $1,106.05 per ounce at 1020 GMT on
Tuesday, but Monday's move has left the market vulnerable to
further slippage - possibly paving the way toward $1,000 per
ounce. ID:nL5N100305
Many investors analyse charts of previous market moves to
decide their strategy, with prices hitting resistance at certain
levels as they rise, or finding support as they fall to others.
In this case, traders and analysts are speculating that at
least one major fund took advantage of the thin market to push
the gold price through a support level on the charts, possibly
because they had already sold gold short. Chinese entities were
seen as the most likely sellers on Monday.
(For GRAPHIC on gold market crash, please click on
http://link.reuters.com/hux25w )
Ashok Shah, investment director at London & Capital
investment fund, said upwards blips were possible but doubted
they would last.
"You are going to get some bear market rallies but
structurally the market has been broken and over the six-month
period you'll get the bear trend continuing," he said.
After sliding on Monday by the most in a day since September
2013, bullion is trading just above the critical $1,100 an ounce
support level, another breach of which could lead to a further
selloff, traders and analysts say.
A looming increase in U.S. interest rates has driven gold's
recent descent along with sluggish demand in top consumers China
and India. China disclosed on Friday a 57 percent increase in
its gold reserves from 2009, far less than the market had
estimated.
CASE FOR GOLD FADES
Investors have found less and less reason to hold gold as a
safe haven following the international financial crisis, with
the dollar strengthening before what is expected to be the first
increase in U.S. interest rates in nearly a decade.
Gold's slide has helped wipe out half the gains from the
last decade's historic bull run, taking prices back to a key
chart level and threatening a break towards $1,000 an ounce.
ID:nL5N100305
But the price is unlikely to fall sharply again on Tuesday
as it did when it fell 13 percent over two consecutive trading
days in April 2013, wrote Phillip Futures analyst Howie Lee.
"Those two infamous days in gold's history was marked by a
constant decline in prices throughout both sessions, while
yesterday's tumble was marked by a one-minute drop followed by a
substantial recovery," said Lee.
"A repeat of history does not look to be on the cards but we
still expect heavy downward pressure on gold in the future. It
looks to be a matter of time before gold breaks again."
Reflecting fading interest in gold, holdings in the SPDR
Gold Trust investment fund fell to its lowest since 2008 GLD .
The price slide also threatens to halt a run of mergers and
acquisitions among mining companies just as momentum in the
sector was picking up. ID:nL3N101390
Among other precious metals, platinum XPT= , which hit a
6-1/2-year low on Monday, was up 0.6 percent, while palladium
XPD= dropped as much as 3.4 percent to its lowest since
October 2012 at $593 an ounce on Monday. It was last up 1.6
percent at $614.25.
Spot silver XAG= , the least hit among precious metals in
Monday's slide, was up 1.2 percent at $14.82 an ounce.