People lost money on paper. The loss turns real when they try to sell their assets.

Prices can drop on very low volumes. All that prices tell us is what someone agreed to buy and sell at a given point in time. Some (most?) sellers are likely selling because they are planning to buy when the price is lower (i.e. they are betting the market will go down) not because they need to use it.

Generally gold is not considered an investment or a hedge against marker instability and most diversified portfolios would not have gold in them.

Yes- if I own the S&P 500 and the S&P 500 goes down then the current value of my investment has gone down.