The index, which measures the balance of buyers and sellers on the firm’s online gold exchange, fell to 52.8 last month, in sharp contrast to April’s jump from 53.3 to 58.6.

Gold priced in sterling fell 2.8% in May to a 25-month low.

A rise in the number of sellers on BullionVault.com put the Gold Investor Index at its lowest level since September 2012, down by 9.6% from April’s 16-month high – sparked by the sharpest fall in gold prices in 30 years.

Adrian Ash, head of research at BullionVault, said: “After April’s surge in the Gold Investor Index a fall was to be expected. Retail investor sentiment towards gold remains positive, despite the uptick in both interest rates and the stock market, and a growing number of people are still adding gold to their savings.

“However, pent-up demand among Western households has been met much faster than among Asian investors, who are now facing shortages and high local premiums. It’s also clear that a number of our long-term holders are choosing to take a step back for now, reducing their investment in gold but keeping an eye on what is to come.”

The index acts as an indicator of how private households are reacting to economic and financial news. A reading above 50 on the index means there were more gold bullion buyers than sellers, showing that gold’s appeal remained positive to savers overall.

Darius McDermott, managing director at Chelsea Financial Services, said the price of gold has fallen as the continued recovery in the US has led to more confidence in the equity market and added to US dollar strength. With news that more stimulus from the Fed may not be required, gold has become less attractive as a safe haven.

He said: “Demand for the precious metal has fallen by about 13% in the last year, with the largest falls as a result of money being taken out of gold ETFs. Demand for gold jewellery has increased though, particularly from Chinese and Indian buyers.

“While it may have lost its appeal in the short term, there will undoubtedly be strong demand for gold over time – demand that should exceed supply and so push up the price once again. The cheaper the price gets in the meantime, the better the entry point for new investors. The asset class is also useful for diversification in a wider portfolio.”

McDermott favours the BlackRock Gold & General and Investec Global Gold funds for investors looking to add gold into their portfolio: “Both funds have specialist, experienced and well-resourced teams looking at this sector. The BlackRock fund is well diversified and invests across the market cap range limiting small cap exposure to 2%.

“The Investec fund is more concentrated with around 20-40 stocks and is typically overweight smaller and medium sized companies. Both have decent long-term track records.”

Although gold is often seen as a safe haven asset, this has not always been the case.

Investors flocked to buy gold in the summer of 2011 during the eurozone debt crisis, yet during periods of more extreme market stress the price has fallen, the credit crunch being a prime example.

With the advent of exchange traded products gold has become easily tradable, which critics say adds to its volatility. Investors are being advised that gold is not a substitute for cash and for some investors the recent sharp fall should be a wake-up call.

It is also worth noting the extent of gold’s bull market since an all-time high of $1,921 was reached in September 2011. The price appreciated from around $250 an ounce in 2001. The recent sell off has taken the price of gold back to the levels seen in March 2011 at around $1,400.