Before ETFs, Australian investors wanting to invest in physical gold would most likely have to own gold stored at the Perth Mint. Most gold ETFs are backed by physical gold. But there have been concerns about ETFs available overseas that use derivatives to track the gold price rather than being backed by physical gold.

Most experts say if there is a culprit for the massive sell-off in gold, it is more likely to be the futures market. Greg Canavan, the editor of Sound Money. Sound Investments, says: "What's happening is that the paper market [futures] is huge and that is where the price [of gold] is set."

Hedge funds buy the paper and they short gold futures as well, he says. "Shorting" is a way of making money on an investment if the price of the investment falls. There is much more trading of "paper" gold in futures markets than than in physical gold, Canavan says.

"[Traders] make big bets and if the bets go wrong there is a massive unwinding of positions as these futures contracts always involve leverage, where movements in prices are magnified, " he says. Canavan does not think that ETFs are to blame. It is the units in the ETFs that are sold and not the physical gold. It is not adding to the supply of gold as people sell their ETFs.

ETFs have increased the liquidity of gold, says Shane Oliver, the chief economist at AMP Capital Investors. "With that comes volatility," he says. "But you would not blame ETFs for the sell-off in gold."