Gold prices fell more than 1 percent on Tuesday as news that the Greek government had dropped calls for a write-off of its foreign debt sharpened risk appetite, sparking a rally in stock markets.
The metal benefited in earlier trade from gains in other commodities but later came under pressure as interest waned in gold as a haven from risk.
"Traders are really in favor of a risk-on appetite not a safety appetite," said Phillip Streible, senior commodities broker for RJO Futures in Chicago.
Spot gold was last down 0.9 percent at $1,263.80 an ounce, having earlier touched a low of $1,255.21, a 1.5 percent drop. U.S. gold futures for April delivery settled down 1.3 percent at $1,260.30 an ounce.
Stock markets rallied around the world while the U.S. dollar fell, as the news from Greece eased concerns about growing instability in the euro zone.
Greece's new government proposed ending a standoff with its official creditors by swapping its foreign debt for growth-linked bonds, a week after its election on an anti-austerity platform.
"(There is some) repositioning away from safe havens," Mitsubishi analyst Jonathan Butler said. "$1,280 was taken out, the 50 percent retracement of the year-to-date high to last week's low. That may have triggered some sell orders."
Gold prices rose more than 8 percent in January, their strongest month in three years, though expectations for a U.S. interest rate increase later in the year kept a lid on gains.
The metal remains sensitive to U.S. data, as traders try to anticipate when the Federal Reserve will raise rates.
Analysts polled by Reuters forecast that the U.S. government would report on Friday that the economy added 230,000 jobs in January, down from 252,000 in December but still robust.
"I do not see much real interest in the market before the NFPs (non farm payrolls) this Friday," Afshin Nabavi, head of trading at MKS in Switzerland, said.
Fresh inflows were seen into gold-backed exchange-traded funds on Monday, with holdings of the largest, New York-listed SPDR Gold Shares, climbing to their highest since October, 24.65 million ounces.