Gold cut some of its earlier losses on Monday as the euro retreated and equity markets pared gains after investor euphoria for Cyprus' last-minute bailout deal lost some momentum.
Some investors had picked up gold as the crisis in Cyprus had re-ignited euro zone debt fears, sending bullion to a one-month high of $1,616.36 an ounce last week.
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The deal with international lenders averted a collapse of the island's banking system, leading the precious metal down.
Spot gold hit its weakest since March 15 at $1,589.49 earlier. It was seen down 0.3 percent to nearly $1603 an ounce. Prices were still on course for their first monthly gain however — standing around one percent higher on the previous month so far — after posting declines every month since October.
U.S. gold futures also dipped to a 10-day low of $1,588.40. They erased nearly all of these earlier losses to settle down $1.60 per ounce at $1,604.50.
The metal broke strong technical support at $1,600 but managed to regain some lost ground, at least for now. Traders said that a sustained push below that level would see the metal enduring further losses. The next downside targets now stand between $1,550 and $1,560.
"Although there is still some uncertainty around the details of the Cyprus deal, the assumption is that it will now be finalized and will meet the conditions that the EU expects and that puts pressure on gold," SocGen analyst Robin Bhar said.
European and U.S. shares pared some gains after the head of the Eurogroup said the Cyprus bailout reached early Monday could be a new template for resolving euro zone banking problems.
Shares had opened stronger on news of the Cyprus deal, which came hours before a deadline to avert a collapse of the banking system in negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund.
"The Cyprus situation should have triggered stronger buying interest for gold as it happened in 2011 but investor behaviour has been more cautious this time as there was some anticipation that a deal would be reached and contagion risk was limited," Peter Fertig, consultant at Quantative Commodity Reaserch, said.
Gold hit a record high of around $1,920 in September 2011, when a worsening debt crisis in Europe sparked a buying rush. Gold's 12-year bull run has benefited in the last three years from the euro zone crisis.
The physical gold market saw buying interest after prices dipped, keeping premiums for bullion bars steady in Hong Kong at $1.20 to $1.50 an ounce above spot prices and at $1.20 in Singapore.
Gold prices faced some pressure from Comex gold options expiry for April on Monday, traders said.
And there was also some pressure from the continuous outflow from gold-backed exchange-traded funds. Holdings of SPDR Gold Trust, the world's largest gold ETF, fell 0.9 tons from the previous session to 1,221.26 tons on Thursday, the lowest since July 2011.
However, hedge funds and money managers raised their bullish bets in gold by 63 percent in the week ending March 19, Commodity Futures Trading Commission data showed on Friday.
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