SAN FRANCISCO (MarketWatch) — Gold futures closed at their lowest level in 21 months, tallying a roughly 20% decline from their record level from August of 2011 to meet the standard for a bear market.

Recent cuts to gold-price forecasts continued to hurt sentiment, prompting investors to lose confidence in gold as a safe-haven investment.

Gold for June delivery GCM23, dropped $63.50, or 4.1%, to settle at $1,501.40 an ounce on the Comex division of the New York Mercantile Exchange, after a dipping to a low of $1,491.40. It fell 4.7% for the week.

Given that settlement for the most-active contract, prices have dropped 20.5% from the record settlement of $1,888.70 an ounce reached on Aug. 22, 2011.

“If you use the standard of a 20% drop from a peak, then it’s already there,” said Brien Lundin, editor of Gold Newsletter.

With speculators now holding a record level of short position, the market may also be primed for a short-covering rally, though the best opportunity to buy gold may not come until the typical summertime bottom in late July, he said.

Based on most-active contracts, FactSet data show gold futures haven’t settled this low since July 1, 2011. Read: Gold bust is masking some big resource wins.

As for the recent declines, “give credit where credit is due — to Goldman Sachs, for a masterful sell raid on gold,” said Gene Arensberg, editor of the Got Gold Report. Goldman Sachs cut to its gold forecast for 2013 this week to $1,545 an ounce, down from a prior forecast of $1,610.

“Without Goldman’s very public call to short gold when it was most vulnerable, there is no way gold would have broken down today,” said Arensberg.

Cyprus and the Fed

Gold also fell along with other commodities, including oil, following a weak batch of U.S. economic data and as the psychological impact of potential selling of the precious metal from Cyprus continued to take a toll.

The financially troubled country has reportedly agreed to sell excess gold reserves to help with its bailout efforts.

“The rumors yesterday about Cyprus possibly selling some gold from its Central Bank reserves had a psychological impact ... despite the fact that the amount of gold being mentioned could easily be absorbed by the market,” said Frederic Panizzutti, senior vice president at MKS Group.

Europe week ahead: Japanese flows

Cyprus was back in the news Friday on speculation its government might ask for more bailout money, which rattled commodities and underpinned the dollar. The country denied it would seek more help.

With the trouble heating up in Europe again and bonds being bid higher today, “the move in gold is somewhat counterintuitive,” said Arensberg.

Meanwhile, minutes of the latest Federal Reserve meeting released this week showed members were at odds about when to stop quantitative easing.

On Friday, Eric Rosengren, president of the Boston Federal Reserve, said the U.S. is “well above our unemployment target and well below our inflation target, so highly accommodative policy is both appropriate and necessary.”

Continued Fed easing tends to support gold prices as the metal acts a hedge against inflation, though lately gold doesn’t seem to be finding much support anywhere.

Gold investors have now created an illusion that the metal is no longer a haven and that more declines are in the offing, said Chintan Karnani, an independent bullion analyst based in New Delhi.

More pressure

Also weighing on the dollar-denominated metal Wednesday, the dollar DXY, -0.00% got a bid after poor U.S. economic data. Retail sales fell 0.4%, exceeding the 0.1% drop that was expected.

Data Friday also showed that consumer confidence in early April fell to the lowest level in nine months.

Gold bears have “expended an enormous amount of ammunition. Their own short covering might start a counter rally,” said Arensberg. “On the other hand, there will undoubtedly be considerable margin-related selling over the next couple trading days, so for now” the bears have the advantage.

Reuters

Continued outflows from gold exchange-traded products have also been key to gold’s recent declines.

Outflows have reached 202 tons so far this year compared with inflows of 279 tons in 2012, Barclays’s precious metals analyst Suki Cooper told clients Thursday.

On Friday, shares of the SPDR Gold Trust GLD, -1.01% and iShares Gold Trust IAU, -1.05% took hits as well, with both losing 4.7%.

And gold wasn’t alone in the selloff. Silver for May delivery US:SIK3 shed $1.37, or 4.9%, to end at $26.33 an ounce. It was down 3.3% for the week.

“Silver will crash in a big way only if it trades below $25.90,” said Karnani. As long as silver trades over $25.90, it will consolidate in the $25.90-$28.96 range.

May copper HGK23, lost 8 cents, or 2.4%, to $3.35 a pound, up 0.2% for the week.

July platinum futures US:PLN3 slumped $39.90, or 2.6%, to $1,495.90 an ounce, down 2.6% from a week ago, and palladium for June delivery US:PAM3 fell $24.25, or 3.3%, to $709.10 an ounce, losing 2% for the week.