Silver also fell further by Rs 150 to Rs 34,200 per kg on lack of buying support from industrial users and coin makers.
Bullion merchants attributed the steep fall to a weak global trend where it crashed to the lowest level in over five years amid prospects for higher US interest rates which dragged gold prices to this year's lowest level in the national capital.
Besides, muted demand from jewellers at domestic spot markets and reports of larger-than-usual sell-off in China, world's top consumer of gold, weighed on the gold prices, they said.
Gold in Singapore, which normally determines price trend on the domestic front, lost 4.2 per cent to $1,086.18 an ounce, the lowest price since March 2010 and silver 2.3 per cent to $14.54 an ounce, the lowest since December 2014.
In the national capital, gold of 99.9 and 99.5 per cent purity plunged by Rs 300 each to Rs 25,700 and Rs 25,550 per 10 grams respectively, a level last seen in June 2013.
Sovereign followed suit and fell by Rs 200 at Rs 22,700 per piece of eight grams.
Tracking gold, silver ready fell by Rs 150 to Rs 34,200 per kg and weekly-based delivery by Rs 600 to Rs 33,600 per kg.
Silver coins nosedived by Rs 1,000 to Rs 49,000 for buying and Rs 50,000 for selling of 100 pieces.
It was a sudden, massive drop for gold and platinum prices as they breached critical support levels as the dollar strengthened on growing expectations that the US Federal Reserve will hike interest rates this year.
"It looks like someone was taking advantage of the low liquidity environment at the moment.
It's a bit of speculative selling going on," said Victor Thianpiriya, analyst at ANZ Bank in Singapore. Nearly 900,000 lots were traded on a key contract on the Shanghai Gold Exchange, compared to less than 27,000 lots on Friday, Reuters data showed. Prior to Monday, volume for July had averaged less than 30,000 lots.
No change in labour laws without unions' consent: Modi
Asia Trophy: Full-strength Arsenal dazzle to success over Everton
Markets extend losses; Banking stocks drag
'What is the right time to appear for GRE?'
3 reasons why Arsenal can win the EPL