By the close of trading, the S&P/TSX composite index had slumped 332.71 points, or 2.7 per cent, to 12,004.88. The materials group, which includes gold stocks, plunged 7.4 per cent.
Gold futures tumbled $140.30 US an ounce — about nine per cent — to settle at $1,361.10. That's a two-year low for the precious metal and the biggest one-day percentage drop since 1983. Gold hit its all-time high in August 2011, just above $1,900 US an ounce.
Gold miners suffered huge declines. Shares of Barrick Gold plunged more than 11 per cent, or $2.64, to $20.30. It was the most actively traded stock on the TSX. Osisko Mining plunged 21 per cent to $4.04. Kinross Gold fell 87 cents to $5.54.
"Leveraged hedge funds appear to be forced to sell gold because of margin calls and now stock margin calls," said Mark Grant, managing director with Southwest Securities.
The gold sell-off began last week on speculation that the central bank in Cyprus would dump some or all of its $600 million US in gold. That sparked worries that other troubled European economies might sell some of their gold reserves too.
"Investors are clearly turning away from gold here, using the price action as justification for unwinding positions and taking capital away from what was once considered as almost a one-way bet," said David White, a trader at Spreadex.
"Even those naturally contrarian are struggling to find reasons to own gold."
Two major American investment banks also downgraded their outlook for gold last week.
Silver plunged more than 11 per cent, down $3.12 to $23.21 an ounce.
China growth unexpectedly slows
China announced Monday that its economy grew by 7.7 per cent in the first quarter. While that's much better than most countries, it surprised analysts who'd expected China's GDP would pick up steam to eight per cent.
"The GDP figure will no doubt prompt 2013 growth forecasts for China to be trimmed over the coming days," said BMO Capital Markets senior economist Benjamin Reitzes.
China is the biggest driver of commodity prices, so any sign of weakness leads to quick sell-offs in the resource sector.
Copper and aluminum prices also hit new year lows Monday. Teck Resources, a major producer of copper, plunged $1.99 to $26.15.
Crude oil futures also slumped on the China news, falling $2.58 to settle at $88.71 a barrel. That's a four-month low for crude. The TSX energy group tumbled 3.3 per cent.
The Dow Jones industrial average had its worst day of the year, falling 265.86 points to close at 14,599.20. The S&P 500 dropped 36.49 points to 1,552.36. The Nasdaq composite index slid 78 points to 3,216.
The Canadian dollar, which often moves in line with commodity prices, slid 1.12 cents to close at 97.52 cents US.