For gold, a tussle between two groups of investors

Big institutions trade with each other directly in large orders through the opaque over-the-counter markets. They also bet on futures exchanges in New York, Tokyo and a few other places.

Gold was "one of the few assets remaining that could be sold at a reasonable price to meet margin calls on other, worse-performing assets," the WGC said in the report.

The significant outflow in the institutional level explains why the gold price did not perform better in the face of strong jewelry buying and demand for physical gold, the WGC said in the report.

Comex gold futures topped $900 an ounce in September after Lehman's bankruptcy filing. But prices have since seen roller-coaster declines. Futures tumbled 18% in October, the largest monthly loss since February 1983. See story on slumps in gold prices.

Some analysts said gold prices would rebound soon as much of the selling that occurred among institutions had a short term focus, and did not reflect a decline in gold's fundamentals.

"In the gold market, the moment the weight of forced selling stops, the demand-supply balance will take precious metals higher and quickly," said Julian Phillips, an analyst at GoldForecaster.com.

Despite gold's recent weakness, it's "still doing an admirable job" in terms of wealth preservation, said Mark O'Byrne, executive director at Gold & Silver Investments Ltd.

The metal's up 10% from its low in August 2007, when the financial crisis started. In contrast, the S&P 500 Index has slumped about 40%. Other commodities have seen even bigger losses. Crude oil has lost more than 60% from its peak prices.

Prices to remain volatile

Gold coins and bars provide an easier channel for retail investors who can't afford OTC or futures trading but can buy gold through dealers online, much like buying a book at Amazon.com.

Demand for gold coins rose so sharply in the past few months that the U.S. Mint, the coin-producing division of the Treasury Department, had to freeze sales of some of its gold coins and put a few others under allocations. See related story.

Jon Nadler, senior analyst at Kitco Bullion Dealers, said demand for gold bars and coins was robust at his firm. But he also pointed out that some investors, frustrated by gold's lack of price performance, were recently selling their gold coins and bars back to dealers.

Gold holdings in ETFs have also been declining recently. The SPDR Gold Trust held 748.94 tons of gold as of Monday, down nearly 22 tons from the October record. Prices of the ETF, which tracks gold prices, have dropped more than 25% from the March record above $100 a share.

The tussle between retail and institution investors, however, isn't over, and prices are to remain volatile.

"Gold's safe-haven appeal should continue, but so too will the possibility of heightened levels of activity in the speculative side of the gold market," Burton, the World Gold Council's CEO, said in a written statement. "It's too soon to call an end to market volatility."

Moming Zhou is a MarketWatch reporter based in New York.

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