China’s biggest one-day stocks drop in eight years lifts gold prices

Chinese shares dropped over 8% on Monday amid renewed fears about the outlook for the world’s No. 2 economy, rekindling worries of a full-blown market crash that prompted unprecedented government intervention earlier this month.

Major indexes suffered their largest one-day drop since 2007, after The Shanghai Composite Index closed down 8.5% at 3,725.56 with most of the plunge occurring in the last hour of trading.

Monday's fall on the Shanghai market was the biggest one-day decline in Chinese stocks since an 8.8% cent plunge on Feb. 27, 2007, according to financial data provider FactSet.

The sharp drop breaks a period of relative calm in China’s volatile stock markets since Beijing unleashed a barrage of support measures to arrest a slump that began in mid-June.

Gold prices benefitted from the news, trading modestly higher in early U.S. trading on some safe-haven demand and bargain hunting.

August Comex gold was last up $5.90 at $1,091.00 an ounce. September Comex silver was last up $0.067 at $14.55 an ounce.

In London, however, bullion prices went the opposite way. Gold prices fell on the London spot market Monday afternoon, trading 0.8% lower at $1,097.5 an ounce.

Matthew Beesley, head of global equities at Henderson Global Investors, told CNBC's Worldwide Exchange that what is happening in China is “a bit self-feeding”:

“Commodity prices are falling which is negative for China as an exporter and that's impinging on other investors' views on fundamental demand as China is also a big importer so the market grinds lower," Beesley said.

Gold hit five-year lows twice last week, hitting $1,077.40 an ounce on Friday before closing at $1,080, driven by concerns over a stronger dollar and the timing of a future U.S. Federal Reserve interest rate rise. The Fed’s Open Market Committee begins Tuesday a two-day policy meeting.