* ETF outflows, Cyprus gold sales spook market
* Japanese bond investors selling also behind sinking prices
* Bullion takes silver, commodities lower
Gold sank more than 5 percent on Friday, entering bear-market territory as institutional investors fled bullion in favor of other safe-haven assets amid concerns about central bank sales and souring sentiment.
The breadth of the sell-off will underline some expectations that gold's meteoric rally may end after 12 years of gains.
The precious metal slid below $1,500 an ounce for the first time since July, 2011. Gold posted its biggest weekly decline since December, 2011.
Selling became heavy after an unexpected contraction in U.S. retail sales data, which hurt stocks and supported the dollar. It added to pressures that were building this week from several factors, including a draft plan for Cyprus to sell bullion and outflows from exchange-traded gold funds.
"The scale of the decline has been absolutely breathtaking. We tried to rally and that just didn't get anywhere ... there hasn't been any downside support, it's like a knife through butter," Societe Generale analyst Robin Bhar said.
The pace of the sell-off appeared tied to volatility in the price of Japanese government bonds, which has forced certain holders to sell other assets to meet the risk modeling of their investment portfolios.
The spot price of bullion hit a low of $1,477, down 5.3 percent on the day. For the week, it showed a decline of more than 6 percent, in its biggest weekly drop since December 2011. Bonds rallied on Friday.
Losses in gold accelerated and trading volumes ballooned after prices fell through key support at $1,521 an ounce. The market is down some 23 percent below a record peak of $1,920.30 hit in September 2011. Investors define a bear market as a decline of 20 percent or more from a market high.
Bullion has soared for more than a decade due to its status as a safe-haven investment in troubled times and in response to inflation fears as the Federal Reserve embarked on an aggressive stimulus program to jump-start the U.S. economy after the financial crisis.
But with signs of a tentative recovery now in world's largest economy, further losses could be looming in gold. Speculative investors are holding one of their smallest net longs in the precious metal since December 2008.
"Could it retest $1,300 or $1,200 on a short-term technical basis? Absolutely yes," said Geoffrey Fila, associate portfolio manager at Galtere Ltd, a commodities-focused hedge fund in New York with about $600 million under management.
U.S. gold futures also hit their lowest since July 2011, with gold for June delivery falling to as low as $1,476 an ounce by 5:20 p.m. EDT (2150 GMT). It settled at $1,501.40, down 4.1 percent.
Other precious metals also sold off, with silver the biggest loser, sliding 5.36 percent to $26.12 per ounce. The commodities complex came under pressure as Brent crude oil hit an nine-month low.
A European Commission assessment of what Cyprus needs to do as part of its European Union/International Monetary Fund bailout earlier this week showed it was set to sell gold reserves to raise around 400 million euros ($525 million).
While Cyprus' gold sale in itself is small, heavily indebted euro zone nations such as Italy and Portugal could also find themselves under increasing pressure to put their bullion reserves to work.
"If Cyprus can break the gold market, then (there are) many reasons to be worried, with Slovenia, Hungary, Portugal, Spain and Italy in line," said Milko Markov, an investment analyst at S.K. Hart Management.
Wary investors continued to cut exposure to gold, with total holdings at the world's major bullion gold-backed exchange-traded-funds (ETFs) falling to their lowest since early 2012. <GOL/ETF HLDTOTALL=XAU>
Holdings of the largest fund, New York's SPDR Gold Trust GLD fell a further 2.1 tonnes, or 67,710 ounces on Thursday, after a 17-tonne outflow on Wednesday.
Financial market watchers are awaiting the outcome of a two-day meeting in Dublin beginning on Friday. Euro-zone finance ministers there said the necessary elements are now in place to launch national procedures to endorse a 10 billion euro bailout fund loan for Cyprus.