Gold prices could tumble towards $800 to $900 an ounce, not seen since the 2008/2009 financial crisis, metals merchant and hedge fund Red Kite warned even as the precious metal extended losses to a second session on Tuesday.

The metal is no longer seen as a decent portfolio diversifier, said Red Kite.

Analysts and traders surveyed by Reuters last week predicted that prices could fall to $1,000 by the end of the year, revisiting that level for the first time since 2009.

Gold fell towards its lowest since 2010 as the strength in the US dollar hurt demand for the precious metal as a hedge. Spot gold fell 0.2 per cent to $1,147.95 an ounce by 0523 GMT, after dropping 2.2 per cent in the previous session.

US gold futures dropped 1 per cent to $1,145.50 an ounce, close to a 4-1/2-year low of $1,130.40 reached last week. Silver futures also dipped over 1 per cent.

The dollar jumped towards a seven-year high against the yen. It was also firm against a basket of major currencies after recouping some of its post-payrolls losses.

Gold's inability to retain a 3 per cent jump from Friday shows investors are selling into rallies, expecting more
downside. A stronger greenback discourages buying of dollar-denominated gold by holders of other currencies.
    
"US economic growth in particular looks buoyant and is likely to drive the dollar even higher, placing downward pressure on gold," said Danny Laidler, head of the ETF Securities' Australia & New Zealand operations.

The firm saw $85.8 million of outflows last week from gold-backed exchange-traded products, reversing the previous four-weeks of inflows as more investors became bearish on the metal's prospects, he said.
   
The bleak investor interest in bullion indicated that investors expect prices to drop further amid a recovery in the US economy, the likelihood of the Federal Reserve rising rates sooner than later and a robust dollar.
    
Holdings of ETF Securities' rival SPDR Gold Trust, the world's top gold exchange-traded fund, fell 0.25 per cent to 725.36 tonnes on Monday - a fresh six-year low.  - Reuters