Prices have been under pressure since early May, when Britain announced plans to cut reserves from 715 to 300 tonnes in the next few years, starting with a 25-tonne gold auction on July 6.

This is more than half the Treasury's hoard of gold which is secured in vaults under the Bank of England.

The UK plans to buy more foreign currencies with the proceeds of the sale.

However its decision has had a knock-on impact on the price of gold.

"The damaging reverberations of such a symbolically-charged action by the Treasury will be felt for many months to come," said the World Gold Council, which represents producers and users.

London gold fixed at $272.20 a troy ounce on Monday morning - the lowest point since May 1979. A troy ounce weighs 1.1 ounces.

Tarnished attraction of gold

Gold was once one of the most valuable assets in the world but as more and more of the shiny metal swills around its value drops.

Critically, for banks it now gives relatively poor returns and several have been selling off their reserves, including the Australians, Belgians, Dutch and the Swiss.

Even the International Monetary Fund is planning to sell up to 300 tonnes of gold to help fund debt relief for poor countries.

] The significance of Switzerland is that its 2,600 tonnes of gold are the third-biggest reserve of holdings in the world, after the US and the eurozone area.

Over the last 20 years bonds and shares have given better returns and many banks and finance institutions are now replacing gold with better yielding investments.

The Swiss reckon the cost of lost interest in holding gold rather than US Treasury bonds is equivalent to around $400 a year per household.

The value of gold has failed to keep pace with inflation, it has underperformed shares and bonds and has been expensive to store.

Banks, like everyone else, are under pressure to improve the returns on their reserves.

The European Central Bank has decided to hold only 15% of its reserves in gold, well below the 30% average of most of the countries in the eurozone.

Gold prices soared in the 1970s when investors were worried about inflation and feared that paper money would lose value.

The fall in the gold price now is a reflection of the non-inflationary climate in the world economy.